Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 16 82K
2: EX-10 Exhibit 10.03 7 20K
3: EX-10 Exhibit 10.07A 1 7K
4: EX-10 Exhibit 10.18 16 29K
5: EX-10 Exhibit 10.19 7 29K
6: EX-12 Statement re: Computation of Ratios -- exhibit12-1 1 7K
7: EX-13 Exhbit 13.01 59± 266K
8: EX-21 Exhibit 21.01 4 22K
9: EX-23 Exhibit 23.01 1 7K
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CONSOLIDATED STATEMENT OF INCOME (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
--------------------------------------------------------------------------------------------------------------------
SALES $ 5,158 | $ 5,043 $ 4,639
Cost of sales, exclusive of depreciation and amortization 3,060 | 3,075 2,732
Selling, general and administrative 699 | 683 641
Depreciation and amortization 499 | 471 445
Research and development 66 | 65 67
Other income (expenses) - net (34) | (42) 77
-----------------------------------------------
OPERATING PROFIT 800 | 707 831
Interest expense 224 | 224 204
-----------------------------------------------
INCOME BEFORE TAXES 576 | 483 627
Income taxes 135 | 103 152
-----------------------------------------------
INCOME OF CONSOLIDATED ENTITIES 441 | 380 475
Minority interests (18) | (27) (45)
Income from equity investments 9 | 10 11
-----------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 432 | 363 441
Cumulative effect of accounting changes (2) | -- (10)
-----------------------------------------------
NET INCOME $ 430 | $ 363 $ 431
===============================================
BASIC EARNINGS PER SHARE: |
Income before cumulative effect of accounting changes $ 2.68 | $ 2.28 $ 2.77
Cumulative effect of accounting changes (0.01) | -- (0.06)
Net income $ 2.67 | $ 2.28 $ 2.71
|
DILUTED EARNINGS PER SHARE: |
Income before cumulative effect of accounting changes $ 2.64 | $ 2.25 $ 2.72
Cumulative effect of accounting changes (0.01) | -- (0.06)
Net income $ 2.63 | $ 2.25 $ 2.66
|
WEIGHTED AVERAGE SHARES OUTSTANDING (000'S): |
Basic shares outstanding 161,510 | 159,123 159,280
Diluted shares outstanding 163,507 | 161,092 162,222
===============================================
The accompanying notes on pages 31 to 46 are an integral part of these financial statements.
17
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CONSOLIDATED BALANCE SHEET (MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000
--------------------------------------------------------------------------------------------------------------------------
ASSETS |
Cash and cash equivalents $ 39 | $ 31
Accounts receivable 857 | 876
Inventories 287 | 297
Prepaid and other current assets 93 | 157
-----------------------
Total Current Assets 1,276 | 1,361
Property, plant and equipment - net 4,817 | 4,771
Equity investments 198 | 242
Other long-term assets 1,424 | 1,388
-----------------------
Total Assets $ 7,715 | $ 7,762
=======================
|
LIABILITIES AND EQUITY |
Accounts payable $ 413 | $ 409
Short-term debt 178 | 159
Current portion of long-term debt 86 | 341
Accrued taxes 80 | 71
Other current liabilities 437 | 459
-----------------------
Total Current Liabilities 1,194 | 1,439
Long-term debt 2,725 | 2,641
Other long-term liabilities 551 | 548
Deferred credits 607 | 619
-----------------------
Total Liabilities 5,077 | 5,247
=======================
|
Minority interests 141 | 138
Preferred stock 20 | 20
Shareholders' equity: |
Common stock $0.01 par value, authorized 500,000,000 shares, |
issued 170,140,567 shares in 2001 and 166,309,105 shares in 2000 2 | 2
Additional paid-in capital 1,795 | 1,658
Retained earnings 2,307 | 1,987
Accumulated other comprehensive income (loss) (1,297) | (1,011)
Less: Treasury stock, at cost (7,997,727 shares in 2001 and 6,929,845 shares in 2000) (330) | (279)
-----------------------
Total Shareholders' Equity 2,477 | 2,357
-----------------------
Total Liabilities And Equity $ 7,715 | $ 7,762
=======================
The accompanying notes on pages 31 to 46 are an integral part of these financial statements.
18
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CONSOLIDATED STATEMENT OF CASH FLOWS (MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
OPERATIONS |
Net income $ 430 | $ 363 $ 431
Adjustments to reconcile net income to net cash |
provided by operating activities: |
Depreciation and amortization 499 | 471 445
Deferred income taxes 36 | 35 53
Repositioning and special charges 58 | 158 --
Other non-cash (benefits) charges (11)| 10 19
Working capital: |
Accounts receivable 46 | (36) 93
Inventories 20 | (13) 12
Prepaid and other current assets 11 | (22) 20
Payables and accruals (22)| 31 (10)
Long-term assets and liabilities (47)| (98) (94)
-------------------------------------
Net cash provided by operating activities 1,020 | 899 969
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|
INVESTING |
Capital expenditures (595)| (704) (653)
Acquisitions (213)| (290) (136)
Divestitures and asset sales 45 | 106 103
-------------------------------------
Net cash used for investing activities (763)| (888) (686)
-------------------------------------
|
FINANCING |
Short-term debt borrowings (repayments) - net 21 | 433 (167)
Long-term borrowings 273 | 22 29
Long-term debt repayments (483)| (328) (109)
Minority transactions and other (14)| (64) 78
Issuances of common stock 142 | 124 89
Purchases of common stock (76)| (144) (73)
Dividends (110)| (98) (89)
-------------------------------------
Net cash used for financing activities (247)| (55) (242)
Effect of exchange rate changes on cash and cash equivalents (2)| (1) 1
-------------------------------------
Change in cash and cash equivalents 8 | (45) 42
Cash and cash equivalents, beginning-of-year 31 | 76 34
-------------------------------------
Cash and cash equivalents, end-of-year $ 39 | $ 31 $ 76
=====================================
|
SUPPLEMENTAL DATA: |
Taxes paid $ 57 | $ 80 $ 51
Interest paid $ 219 | $ 227 $ 209
Debt reclassifications (Note 5) $ -- | $ 1,029 $ 627
Tax benefits from stock option exercises $ 20 | $ 5 $ 16
South American rights offering (Note 7) $ -- | $ -- $ 138
Acquired debt from acquisitions $ -- | $ 12 $ --
Debt from consolidation of equity Company (Note 5) $ 65 | $ -- $ --
=====================================
The accompanying notes on pages 31 to 46 are an integral part of these financial statements.
19
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN MILLIONS, SHARES IN THOUSANDS)
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK OTHER COM-
----------------- PAID-IN ---------------- RETAINED PREHENSIVE
ACTIVITY SHARES AMOUNTS CAPITAL SHARES AMOUNTS EARNINGS INCOME (LOSS) TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 161,517 $ 2 $ 1,528 3,946 $ (166) $ 1,380 $ (412) $ 2,332
---------------------------------------------------------------------------------------
Net income 431 431
Translation adjustments (416) (416)
-------
Comprehensive income 15
Dividends on common stock
($0.56 per share) (89) (89)
Issuances of common stock:
For the dividend reinvestment
and stock purchase plan 64 1 1
For employee savings and
incentive plans 2,634 84 (488) 20 104
Purchases of common stock 1,710 (73) (73)
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Balance, December 31, 1999 164,215 $ 2 $ 1,613 5,168 $ (219) $ 1,722 $ (828) $ 2,290
=======================================================================================
Net income 363 363
Translation adjustments (183) (183)
-------
Comprehensive income 180
Dividends on common stock
($0.62 per share) (98) (98)
Issuances of common stock:
For the dividend reinvestment
and stock purchase plan 73 1 1
For employee savings and
incentive plans 2,021 44 (2,054) 84 128
Purchases of common stock 3,816 (144) (144)
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Balance, December 31, 2000 166,309 $ 2 $ 1,658 6,930 $ (279) $ 1,987 $(1,011) $ 2,357
=======================================================================================
Net income 430 430
Translation adjustments (270) (270)
Derivative instruments,
net of $2 million tax (4) (4)
Minimum pension liability,
net of $6 million tax (12) (12)
Comprehensive income 144
Dividends on common stock
($0.68 per share) (110) (110)
Issuances of common stock:
For the dividend reinvestment
and stock purchase plan 45 1 1
For employee savings and
incentive plans 3,787 136 (619) 25 161
Purchases of common stock 1,687 (76) (76)
---------------------------------------------------------------------------------------
Balance, December 31, 2001 170,141 $ 2 $ 1,795 7,998 $ (330) $ 2,307 $(1,297) $ 2,477
========================================================================================
The accompanying notes on pages 31 to 46 are an integral part of these financial statements.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
Praxair's reported sales in 2001 reflect a 2% increase over 2000 while earnings,
which include special items of $57 million in 2001 and $117 million in 2000, are
up 18%. Excluding these special items in both years, earnings were up 2%.
Although sales and operating earnings in 2001 were up slightly over 2000 levels
(excluding special items), we were able to maintain after-tax return on capital
of 12% and increased operating cash flow by 13%. Worldwide pricing improvements
coupled with our restructure actions in late 2000 and in the third quarter 2001,
helped to offset the negative impacts from the worldwide economic slowdowns,
especially in the U.S. (our largest market), energy shortages in Brazil, and
negative currency impacts from the strong U.S. Dollar.
Below is a summary discussion of our consolidated results followed by each
segment. In these discussions, we have separately reported our industrial gases
business in Asia and made other changes to our segment presentations (see note 3
to our consolidated financial statements for a description of these changes).
CONSOLIDATED RESULTS
The following table provides summary data for 2001, 2000 and 1999:
(DOLLAR AMOUNTS IN MILLIONS)
YEAR ENDED DECEMBER 31, 2001(a) | 2000(a) 1999(a)
Sales $ 5,158 | $ 5,043 $ 4,639
Selling, general and administrative $ 699 | $ 683 $ 641
Depreciation and amortization $ 499 | $ 471 $ 445
Operating profit $ 800 | $ 707 $ 831
Interest expense $ 224 | $ 224 $ 204
Effective tax rate 23% | 21% 24%
Income before cumulative |
effect of accounting changes $ 432 | $ 363 $ 441
Number of employees 24,271 | 23,430 24,102
--------------------------------
Adjusted:(b) |
Cost of Sales $ 3,053 | $ 3,028 $ 2,732
Selling, general and administrative $ 694 | $ 662 $ 641
Other income (expenses) - net 24 | 49 $ 77
Operating profit $ 870 | $ 866 $ 831
Effective tax rate 23% | 23% 24%
Income before cumulative |
effect of accounting changes $ 489 | $ 480 $ 441
================================
(a) The results for 2001 versus 2000 and 1999 were significantly impacted by
the devaluation of the Brazilian currency (Real) from a rate of 1.79 Reais
to the U.S. Dollar at December 31, 1999 to 1.96 at December 31, 2000 and
2.32 at December 31, 2001 (2.35 average rate for 2001 versus a 1.83 and
1.81 average rate for 2000 and 1999, respectively). Reported amounts from
Brazil were all reduced in proportion to the exchange rate changes. Also,
as described in Note 5 to the consolidated financial statements, in January
1999 Praxair entered into various currency exchange forward contracts to
hedge anticipated Brazilian net income and a portion of its investment. The
net income hedges were settled during 1999 resulting in a non-recurring
pre-tax gain of $21 million ($14 million after taxes and minority
interests).
(b) Adjusted results exclude the following special items: In 2001, pre-tax
restructuring and other actions totaling $70 million ($57 million
after-tax); and, in 2000 pre-tax repositioning and other special charges
totaling $159 million and equity income charges of $2 million ($117 million
after-tax) (see Note 2 to the consolidated financial statements). These
items are collectively referred to as special items.
Special Items
Reported amounts for 2001 and 2000 include special items that affect
period-to-period comparisons. Management's discussion and analysis that follows
excludes the impact of these special items as described in footnote (b) to the
above table.
2001 compared with 2000.
The sales increase of 2% for 2001 as compared to 2000 was due primarily to price
improvements in all segments of the business, volume growth in Europe and Asia,
and homecare and electronics acquisitions primarily in North America. These
increases were largely offset by unfavorable currency impacts in South America,
Europe, and Asia and volume declines in North America, South America and in
Surface Technologies.
Operating profit increased slightly for 2001 versus for 2000. This was due
primarily to the sales increase described above, productivity improvements in
all segments and contributions from acquisitions primarily in North America,
largely offset by volume declines, cost inflation and currency translation
impacts. As a percentage of sales, selling, general and administrative expenses
for 2001 were slightly higher due to cost inflation and acquisitions; being
offset by the effect of productivity improvement initiatives and currency
impacts. The increase in depreciation and amortization expense for both periods
reflects the impact of new projects coming on-stream and acquisitions. Other
income (expenses) - net for 2001 was $24 million, a decrease of $25 million from
2000. The decrease in other income is largely due to net exchange losses on net
income hedges in 2001 of approximately $8 million, as compared to net exchange
gains of approximately $10 million in 2000.
Income before accounting changes increased 2% for 2001 versus 2000. This
increase was due to lower minority interests, and the slightly improved
operating results noted above. The decrease in minority interests is primarily
due to the impact of the increase in Praxair's ownership interest in White
Martins (See Note 7 to the consolidated financial statements and the South
America segment discussion).
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
The number of employees at December 31, 2001 was 24,271, which reflects an
increase of 841 from December 31, 2000. The increase is principally the result
of acquisitions (approximately 1,200) and increased service offerings being only
partially offset by restructuring actions.
2000 compared with 1999.
The sales increase of 9% for 2000 as compared to 1999 was due primarily to
volume growth in all regional segments, electronics acquisitions and price
improvements in North and South America. These increases were partially offset
by unfavorable currency translation impacts, primarily in Europe.
Operating profit increased 4% for 2000 versus 1999. This increase was due
primarily to the volume and price improvements described above, productivity
improvements, and contributions from electronics acquisitions, partially offset
by cost inflation and currency translation impacts. As a percentage of sales,
selling, general and administrative expenses for 2000 were lower due primarily
to productivity improvement initiatives and higher long-term incentive plan
costs in 1999, partially offset by cost inflation and higher business
development costs. The increase in depreciation and amortization expense
reflects the impact of new projects coming on-stream, as well as electronics
acquisitions. Other income (expenses) - net for 2000 was $49 million a decrease
of $7 million, excluding a $21 million currency hedge gain in 1999. (See Note 5
to the consolidated financial statements).
Income before accounting changes increased 9% for 2000 versus 1999. This
increase was due to the higher operating profit described above and lower
minority interests, partially offset by higher interest expense. The decrease in
minority interests is due to the impact of the increase in Praxair's ownership
interest in White Martins (See Note 7 to the consolidated financial statements
and Segment Discussion - South America). Interest expense increased due to
higher debt levels to fund the acquisition of minority interests in Brazil and
higher short-term interest rates. Based on an overall assessment of Praxair's
global tax position, the effective tax rate was lowered in 2000 to 23% from 24%
in 1999, excluding the impact of the special items.
The number of employees at December 31, 2000 was 23,430, which reflects a
decrease of 672 from December 31, 1999. The decrease is principally the result
of a divestiture and continued productivity improvement initiatives in South
America, employee reductions in the Surface Technologies business, and the 2000
repositioning charge.
SEGMENT DISCUSSION
Effective December 31, 2001, we have redefined our segments to be in alignment
with the way our business currently is being managed. Accordingly, prior years'
information has been restated to conform with this new presentation. Refer to
Note 3 to the consolidated financial statements for a summary of the changes.
The following summary of sales and operating profit by segment provides a basis
for the discussion that follows:
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
-------------------------------------------------------------------
SALES: |
North America $ 3,434 | $ 3,294 $ 2,995
South America 674 | 727 697
Europe 537 | 542 529
Asia 255 | 220 146
Surface Technologies 410 | 414 390
Eliminations (152) | (154) (118)
-----------------------------------
Total $ 5,158 | $ 5,043 $ 4,639
===================================
SEGMENT OPERATING PROFIT:(a) |
North America $ 545 | $ 524 $ 473
South America 129 | 161 155
Europe 119 | 128 116
Asia 38 | 23 10
Surface Technologies 39 | 34 51
All Other -- | (4) 26
-----------------------------------
Total $ 870 | $ 866 $ 831
===================================
(a) Excludes special charges in 2001 and 2000 (see Notes 2 and 3 to the
consolidated financial statements).
22
North America
The North America operating segment includes Praxair's industrial and packaged
gases operations in the United States, Canada, Mexico, Puerto Rico and Costa
Rica. Praxair's U.S. and Canadian packaged gases operations within the North
America segment are collectively referred to as Praxair Distribution.
Sales for 2001 increased 4% as compared to 2000. The increase was due to
price increases and acquisitions in the electronics and healthcare markets;
partially offset by lower volumes. The price increases, in part, reflect higher
natural gas costs for the year ended December 31, 2001, which pass through to
on-site hydrogen customers. These price increases were partially offset by
decreases in volumes for the United States and Canada industrial gas businesses
(Mexico continued to show strong demand) and unfavorable currency translation
impacts in Canada.
Sales for 2000 increased 10% as compared to 1999. This increase is due to
price increases and volume growth in all geographies, although sales volume
declined in the fourth quarter reflecting a slowing U.S. economy. The price
increases, in part, reflect higher natural gas costs, which pass through to
on-site hydrogen customers without impacting operating profit.
Operating profit increased 4% for 2001 versus 2000 primarily due to price
increases, cost reductions and acquisitions; partially offset by a decrease in
sales volumes and cost inflation. The economic slowdown in North America is
primarily responsible for the volume decrease in the industrial gas businesses
of the United States and Canada, but volumes in Mexico were up for the year. We
expect continued weakness in the manufacturing, electronics, steel and chemicals
markets, with strength in healthcare and energy. Overall, we do not expect any
near term improvement.
Operating profit increased 11% for 2000 versus 1999 primarily due to
increased sales volume, acquisitions and benefits of productivity improvements;
partly offset by higher energy-related costs and cost inflation.
South America
Praxair's South American industrial gases operations are conducted by its
subsidiary, S.A. White Martins (White Martins), which is the largest industrial
gases company in Brazil. White Martins has operations in most countries in South
America, including Argentina, Bolivia, Chile, Columbia, Paraguay, Peru, Uruguay
and Venezuela. As a result of a tender offer in 2000 and a rights offering in
1999, Praxair increased its ownership interest in White Martins from 69.3% at
December 31, 1998 to 99.2% at December 31, 2001. As consideration for the
additional shares it purchased during the tender offer in 2001 and 2000, Praxair
paid $244 million and during the rights offering in 1999, Praxair used
approximately $138 million of intercompany loans it had previously made to White
Martins. Approximately $15 million of the rights offering were purchased by
minority shareholders.
Due to a lack of rainfall, a hydroelectric energy shortage developed in
Brazil, and the government mandated a power curtailment to industries ranging
from 15% to 25% effective as of June 1, 2001. Region specific curtailments to
the industrial gas industry were set at 17.5%. This curtailment has had the
effect since June 1, 2001 of both reducing demand and increasing costs (see Raw
Materials and Energy Costs section below). In addition, economic uncertainties
surrounding Argentina put pressure on the Brazilian currency - the Real, causing
the Brazilian government to increase domestic interest rates and review its
economic growth prospects.
The January 2002 currency devaluation as well as the financing of the
government's fiscal deficit is the major source of economic concern in
Argentina. Argentina suspended the trading in its currency before year-end (when
the exchange rate was at parity with the U.S. dollar), and did not resume
trading until January 11, 2002. The balance sheet for Praxair's operations in
Argentina as of December 31, 2001 has been translated at a rate of 1.7 Argentine
pesos to 1 U.S. dollar. This devaluation of the Argentine Peso resulted in a
charge of approximately $62 million to Other Comprehensive Income (Loss) in
Shareholders' Equity. The average rate for translating the income statement was
unaffected by the devaluation and remained at a 1:1 ratio. By mid-February 2002,
the exchange rate band further devalued to about 1.84:1 ratio, and future
results will be translated at average prevailing rates.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
Future currency movements versus the U.S. Dollar, if any, will continue to
impact reported results. In 2001, Brazil represented approximately 70% of South
America's sales, and Argentina represented approximately 10%.
Sales for 2001 decreased 7% due primarily to the negative impact of
currency translation, volume reductions and the divestiture in the third quarter
2000 of the precipitated calcium carbonate business, which is only partially
offset by price increases, new customer service offerings and a non-recurring
Colombian sales adjustment in 2000.
Sales for 2000 increased 4% versus 1999 primarily due to pricing
improvements and volume increases. These increases were partially offset by the
impact of the divestiture of the precipitated calcium carbonate business,
unfavorable currency translation effects and an $8 million adjustment for sales
that had been improperly recorded by Praxair's Colombian subsidiaries. Excluding
the impact of the business divestiture, sales increased by 8%.
Operating profit for 2001 decreased 20% as compared to 2000. This decline
is primarily due to the negative impact of currency effects, including net
income hedges; partially offset by pricing increases, productivity improvements
and higher sales from services. Excluding currency effects, operating profit
increased 5%.
Operating profit for 2000 increased 4% as compared to 1999. This increase
was primarily due to productivity improvement initiatives and the sales
increase, partially offset by cost inflation and unfavorable currency
translation effects. Operating profit for 2000 also includes $8 million of
income related to the termination of a carbon dioxide raw material supplier
contract in Brazil, which was offset by the Colombia sales adjustment. Also, as
described in Note 5 to the consolidated financial statements, in early January
1999 Praxair entered into various currency exchange forward contracts to hedge
anticipated Brazilian net income and a portion of its net investment. The net
income hedges resulted in a non-recurring pre-tax gain of $21 million, which is
included in the South American operating profit for 1999.
Europe
Praxair's European industrial gases business is primarily in Italy and Spain
with additional operations in Benelux, Germany, France, Israel and Poland.
Sales for 2001 decreased 1% as compared to 2000, due primarily to
unfavorable currency translation effects, partially offset by volume growth,
acquisitions and price increases. Excluding the currency translation effects for
2001, sales increased by 2%, reflecting strong results in Spain and Italy.
Sales for 2000 increased 2% as compared to 1999, due to volume growth and
price improvements, being partially offset by unfavorable currency translation
effects. Excluding the currency translation effects and acquisitions for 2000,
sales increased by 10%, again reflecting a strong performance in Spain and
Italy.
Operating profit for 2001 decreased 7% as compared to 2000, however;
excluding currency effects operating profit increased 5%. This increase was due
to the impact of acquisitions and productivity improvement initiatives, partly
offset by cost inflation.
Operating profit for 2000 increased 10%, as compared to 1999. Excluding
currency effects for 2000, operating profit increased 14%. This increase was due
to the sales volume impacts discussed above, and productivity improvement
initiatives, partly offset by cost inflation.
Asia
The Asia segment includes Praxair's industrial gases business primarily in
China, India, Korea and Thailand, with smaller operations in Japan, Malaysia and
Taiwan. Operations in China are also conducted through non-consolidated joint
venture companies accounted for as equity companies.
Sales for 2001 increased 16% compared to 2000. Effective in the 2001 third
quarter, Praxair increased its ownership in a joint venture company in India
from 50% to 74% by converting preferred stock into common stock, and began
consolidating the company. This increased 2001 sales by $28 million for the
year. Excluding the consolidation of the joint venture company, sales increased
by 3%, due primarily to strong volume growth partially offset by currency
impacts.
Sales for 2000 increased 51% as compared to 1999. Asia experienced strong
sales growth due primarily to strong volume growth of about 34%, particularly in
Korea and Thailand, new plants coming on stream in China and India, and
favorable currency translation effects.
24
Operating Profit for 2001 increased $15 million compared to 2000. Excluding
the consolidation of the India joint venture company, operating profit would
have increased by $7 million due to volume growth.
Operating Profit for 2000 increased $13 million compared to 1999, due to
volume growth and new plants coming on stream.
Surface Technologies
Praxair's worldwide Surface Technologies business includes operations primarily
in the U.S. and Europe, with smaller operations in Asia and Brazil. Effective
December 31, 2001 several product lines serving the electronics industry,
previously reported as part of Surface Technologies, are now reported within the
appropriate industrial gases segment (see Note 3 to the consolidated financial
statements).
Sales for 2001 decreased 1% as compared to 2000 due to lower volumes and
unfavorable currency effects, which were partially offset by price increases.
The lower volumes reflect weakness in the aviation services business, with solid
global coatings business growth.
Sales for 2000 increased 6% as compared to 1999 due to the impact of 1999
acquisitions. The increase was partly offset by core business volume and price
decreases and unfavorable currency impacts.
Operating profit for 2001 was flat, excluding the $5 million charge for
severance and other exit costs, which occurred in 2000 (see Note 2 to the
consolidated financial statements). This reflects the contribution from
productivity improvement initiatives offset by volume declines.
Operating profit for 2000 decreased 24%, excluding the $5 million charge
for severance and other exit costs as compared to 1999. This decrease reflects
pricing pressures and cost inflation, partly offset by productivity improvement
initiatives.
In response to weakening economic conditions in 2001 and an anticipated
slowdown in the aviation industry (even more significant after September 11,
2001), reductions of about 310 positions and consolidation of service locations
were made.
All Other
The All Other segment includes unallocated corporate items. The 2000 operating
loss of $4 million primarily includes the operating loss of MetFabCity, Inc. (an
e-business investment that was terminated in the fourth quarter of 2000),
partially offset by a gain from the sale of assets. The 1999 operating profit of
$26 million includes income related to the redemption of preferred shares and
the collection of a note receivable from earlier business sales, with offsetting
costs related to postemployment benefits.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales was 13.5%
in 2001 as compared to 13.1% in 2000. This increase is primarily due to recent
acquisitions which have more than offset the benefits realized from productivity
improvement initiatives.
Selling, general and administrative expenses as a percentage of sales was
13.1% in 2000 as compared to 13.8% in 1999. This decrease is due to continuing
productivity improvement initiatives and currency impacts; partially offset by
increased cost inflation and MetFabCity, Inc. costs.
Other income (expenses) - net
Refer to Note 7 to the consolidated financial statements for a summary of the
major components of other income (expenses) - net.
Other income (expenses) - net for 2001 was $24 million, a decrease of $25
million from 2000. The decrease is largely due to net exchange losses on net
income hedges in 2001 of approximately $8 million (primarily Brazil and Mexico),
as compared to net exchange gains of approximately $10 million in 2000
(primarily Europe).
Other income (expenses) - net was $49 million in 2000 versus $56 million
excluding a $21 million hedge gain in 1999. 1999 includes income related to the
redemption of preference shares, the collection of a note receivable from
earlier business sales, and European net income hedge gains. These gains offset
currency translation effects in the European segment, costs incurred for
postemployment benefits, and losses related to a third party plant sale.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest Expense
Interest expense was flat for 2001 versus 2000. Interest expense increased $20
million or 10% for 2000 versus 1999. This increase was due to increased debt
resulting from the purchase of minority shares in Brazil and higher interest
rates during most of 2000.
Income Taxes
Excluding the special items, the effective tax rate for 2001 and 2000 was 23%,
compared with 24% for 1999. Praxair currently expects the effective tax rate to
be 22% to 23% in 2002.
Minority Interests
Minority interests consist of minority shareholders' investments in Europe
(primarily Rivoira S. p. A. in Italy), S.A. White Martins in Brazil, North
America (primarily within Praxair Distribution), and Asia (primarily China).
Additionally, Praxair records the dividends on preferred stock in minority
interests ($1 million in 2001, $3 million in 2000, and $6 million in 1999).
The decreases in minority interests of $9 million in 2001 versus 2000, and
$18 million in 2000 versus 1999, are due primarily to the acquisition of
minority interests in White Martins (see South America segment discussion) and
lower preferred stock dividends.
Income from Equity Investments
Our more significant equity investments are in Belgium, China, Italy and Turkey.
Praxair's share of net income from corporate equity investments decreased
slightly to $9 million in 2001 compared to $10 million for 2000 and $11 million
in 1999. Effective in the 2001 third quarter an equity company in India was
consolidated (see Asia segment discussion).
Costs Relating to the Protection of the Environment
Praxair's principal operations relate to the production and distribution of
atmospheric and other industrial gases, which historically have not had a
significant impact on the environment. However, worldwide costs relating to
environmental protection may continue to grow due both to increasingly stringent
laws and regulations and to Praxair's ongoing commitment to rigorous internal
standards. Environmental protection costs in 2001 were approximately $5 million
of capital expenditures and $13 million of expenses. Included in the expenses
were approximately $1 million for remedial projects. Praxair anticipates that
future environmental protection expenditures will approximate the level of those
in 2001 and will not have a material adverse effect on the consolidated
financial position or on the consolidated results of operations or cash flows in
a given year.
Commitments and Contingencies
See Note 13 to the consolidated financial statements for information concerning
commitments and contingencies.
Liquidity, Capital Resources And Financial Data
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
--------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR): |
OPERATING ACTIVITIES: |
Net income plus depreciation |
and amortization(a) $ 987 | $ 992 $ 876
Working capital 55 | (40) 115
Other - net (22) | (53) (22)
-------------------------------------
Total from operating activities $ 1,020 | $ 899 $ 969
=====================================
INVESTING ACTIVITIES: |
Capital expenditures $ (595) | $ (704) $ (653)
Acquisitions (213) | (290) (136)
Divestitures and asset sales 45 | 106 103
-------------------------------------
Total used for investing $ (763) | $ (888) $ (686)
=====================================
FINANCING ACTIVITIES: |
Debt increases (reductions) $ (189) | $ 127 $ (247)
Minority transactions and other (14) | (64) 78
Issuances (purchases) of stock 66 | (20) 16
Cash dividends (110) | (98) (89)
-------------------------------------
Total used for financing $ (247) | $ (55) $ (242)
=====================================
DEBT-TO-CAPITAL RATIO, |
AT DECEMBER 31: |
Debt $ 2,989 | $ 3,141 $ 2,995
Capital(b) $ 5,627 | $ 5,656 $ 5,719
Debt-to-capital ratio 53.1% | 55.5% 52.4%
-------------------------------------
(a) Includes SPECIAL CHARGES (See Note 2 to the consolidated financial
statements).
(b) Includes debt, minority interests, preferred stock and shareholders'
equity.
26
Cash Flow from Operations
Cash flow from operations increased $121 million to $1,020 million in 2001 from
$899 million in 2000. This increase is mainly due to improved working capital in
2001 versus 2000, with decreases in accounts receivable, inventory, prepaid and
other assets, and increases in tax benefits from exercised stock options.
Cash flow from operations decreased $70 million to $899 million in 2000
from $969 million in 1999. This decrease is mainly due to working capital
increases in accounts receivable and a decrease in tax benefits from exercised
stock options.
[GRAPHIC OMITTED - Working Capital as a Percent of Sales Bar Chart]
Investing
Cash flow used for investing in 2001 totaled $763 million, a decrease of $125
million from 2000. This decrease was due to lower capital expenditures and
acquisitions, partially offset by lower divestitures and asset sales versus
2000. Cash flow used for investing in 2000 totaled $888 million, an increase of
$202 million from 1999. This increase was due to capital expenditures and
acquisitions, primarily related to the purchase of minority interests in Brazil
(see South America segment discussion).
[GRAPHIC OMITTED - Capital Expenditures Bar Chart]
Capital expenditures for 2001 totaled $595 million a decrease of $109
million from 2000 expenditures of $704 million. This was due to a reduction of
capital expenditures in response to the economic slow down in several of our
markets, and the absence of 2000 e-commerce investments. Capital expenditures
for 2000 totaled $704 million an increase of $51 million from 1999 expenditures
of $653 million. This was due to our increase in e-commerce investments along
with capital expenditure increases in all segments except Surface Technologies.
Acquisition expenditures for 2001 totaled $213 million, a decrease of $77
million from 2000. The decrease is due primarily to the absence of the 2000
buyout of minority interests in Praxair's South American subsidiary being only
partially offset by targeted healthcare and electronics acquisitions in 2001
totaling $192 million. Acquisition expenditures for 2000 totaled $290 million,
an increase of $154 million from 1999. The increase is due primarily to the
buyout of minority interests in Praxair's South American subsidiary for $242
million (see South America segment discussion).
Divestitures and asset sales in 2001 totaled $45 million, a decrease of $61
million from 2000. The 2001 decrease in asset sales is due to the absence of the
2000 disposal of the precipitated calcium carbonate business in South America.
Divestitures and asset sales in 2000 totaled $106 million, an increase of $3
million from 1999.
On a worldwide basis, capital expenditures for the full year 2002 are
expected to be around $600 million. Acquisition expenditures will depend on the
availability of opportunities at attractive prices.
Financing
Praxair's financing strategy is to secure sufficient funds to support its
operations in the United States and around the world using a combination of
local borrowing and intercompany lending in order to minimize the after-tax cost
of funds and to manage and centralize currency exchange exposures. Praxair
manages its exposure to interest rate changes through the use of financial
derivatives (see Note 5 to the consolidated financial statements and the section
titled "Market Risks and Sensitivity Analysis").
At December 31, 2001, the Company's total debt outstanding was $2,989
million, a decrease of $152 million from 2000. The December 31, 2001 debt
balance is comprised of $1,841 million in public notes, $716 million in
commercial paper, and the remaining $432 million is primarily bank borrowings
from around the world. As of December 31, 2001,
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
there were no borrowings under Praxair's $1.5 billion U.S. bank credit
facilities and Praxair's investment grade credit rating for long-term debt was
maintained at A3 by Moodys and BBB+ by Standard & Poors. Commercial paper was
rated P2 by Moodys and A2 by Standard & Poors.
Praxair's off-balance-sheet financing arrangements at December 31, 2001 are
primarily in the form of operating lease obligations totaling $394 million (see
Note 12 to the consolidated financial statements). The lease footnote describes
two sale and leaseback transactions totaling $230 million that were completed in
1998 and 1999, and the commitments and contingencies footnote 13 describes a
remote $196 million residual value guarantee that exists related to these two
leases. Other major lease obligations include a production facility along the
U.S. Gulf coast and the corporate headquarters in Danbury, CT. The present value
of all operating lease obligations, referenced above, is about $303 million. No
off-balance-sheet obligations have "spring back" provisions based on Praxair
stock price or credit ratings. Also, certain of Praxair's unconsolidated
affiliates have debt on their balance sheets totaling $113 million, all of which
is non-recourse to Praxair except for about $4 million. Similarly, we have no
financings with related parties.
Following is a summary of consolidated debt and lease obligations at
December 31, 2001 (see Notes 5, 12 and 13 to the consolidated financial
statements):
(MILLIONS OF DOLLARS)
OBLIGATION PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------------------
less than
Total 1 Year 1-3 Years 4-5 Years After
Debt:
Public notes $1,841 $ -- $ 641 $ 400 $ 800
Commercial paper* 716 -- -- 716 --
Other 432 264 92 51 25
---------------------------------------------------
Total debt 2,989 264 733 1,167 825
Operating leases 394 82 115 82 115
---------------------------------------------------
Total debt and leases $3,383 $ 346 $ 848 $1,249 $ 940
===================================================
* Commercial paper is supported by credit agreements that expire through 2005.
During the first half of 2001, $250 million 6.70% Notes that became due
were replaced with new $250 million 6.50% Notes due 2008. In July 2000, Praxair
entered into a new $500 million, 364-day revolving credit agreement and a new $1
billion, five-year revolving credit agreement to replace its then existing
credit agreement. In July 2001, Praxair renewed the $500 million, 364-day
revolving credit agreement, which was maturing. At December 31, 2001 and 2000,
$716 million and $852 million, respectively, of short-term borrowings have been
classified as long-term debt under the terms of the existing credit agreements,
and based upon Praxair's ability and intent to roll over the short-term
borrowings on a long-term basis (see Note 5 to the consolidated financial
statements).
Praxair's debt-to-capital ratio decreased to 53.1% at December 31, 2001
from 55.5% at December 31, 2000. This decrease is due to the reduction in debt
outstanding. Operating-cash-flow-to-debt ratio increased to 34.1% at December
31, 2001 from 28.6% at December 31, 2000.
[GRAPHIC OMITTED - Operating Cash Flow to Debt Bar Chart]
During the third quarter of 2002 8.7% Notes due in 2022 become callable. It
is our intention to refinance these notes in the public market at lower rates.
To do this we will have to record $15 million of pre-tax expense ($13 million
premium payment and $2 million of unamortized debt issue cost). We will also
continue to review our commercial paper and bank borrowing levels that provide
funding at alternative short-term rates. Also, our $20 million dollar series B
preferred stock is redeemable on September 5, 2002 (see Note 8).
RAW MATERIALS AND ENERGY COSTS
Energy is the single largest cost item in the production and distribution of
industrial gases. Most of Praxair's energy requirements are in the form of
electricity. Other important elements are natural gas, waste hydrogen (for
hydrogen) and diesel fuel (for distribution). A shortage or interruption of
energy, or increase in energy prices that cannot be passed through to customers,
are risks to Praxair's business and financial performance. Because many of
Praxair's contracts with customers are long term, with pass-through provisions,
Praxair has not, historically, experienced significant difficulties related to
recovery of energy costs. Supply of energy also has not been a significant
issue. However, during 2000 and 2001, there has been unprecedented volatility in
the cost and supply of electricity and natural gas prices in the United States,
particularly California and Washington, and energy supply curtailments in Brazil
(see South America segment discussion). To date, Praxair has been able to
substantially mitigate the financial
28
impact of these costs by passing them on to customers. In anticipation of
continued volatility, the company has taken aggressive pricing actions, is
strengthening its energy management program for purchased power, including the
use of derivative instruments to reduce risk associated with purchases of
natural gas and electricity (see Notes 1 and 5 to the consolidated financial
statements), and is implementing new customer contract terms and conditions.
However, the outcome of regional energy situations or new energy situations is
unpredictable and may pose unforeseen future risks.
For carbon dioxide, carbon monoxide, helium, hydrogen, specialty gases and
surface technologies, raw materials are largely purchased from outside sources.
Praxair has contracts or commitments for, or readily available sources of, most
of these raw materials; however, their long-term availability and prices are
subject to market conditions.
CUSTOMER MARKETS
Praxair's industrial gases are used by a diverse group of customers in a variety
of industries including manufacturing, metals, chemicals, food & beverage,
electronics, healthcare, energy, aerospace and numerous other markets. By using
the gases Praxair produces and, in many cases, the proprietary processes that it
invents, customers benefit through improved product quality, increased
productivity, lower operating costs, conservation of energy and the attainment
of environmental improvement objectives. Praxair has a large number of customers
and no single customer accounts for a significant portion of Praxair's annual
sales. Aircraft engines are Surface Technologies' primary market, but it also
serves the printing, textile, chemical and metals markets. Aircraft engine and
airframe component overhaul services are other offerings.
ACCOUNTING POLICIES AND JUDGMENTS
Refer to Note 1 to the consolidated financial statements for a description of
Praxair's significant accounting policies. As described in these policies, the
preparation of the financial statements requires management to make significant
judgments, estimates and assumptions concerning the appropriate accounting
policies and their application, all of which affect the reported amounts
included in the financial statements.
Although we believe that no individual accounting policy stands out as the
most significant for Praxair, and that the accounting policies, estimates and
assumptions used to prepare the financial statements are reasonable and
appropriate, actual results could differ. While we do not believe such
differences, if any, will be material, it is difficult to predict the ultimate
outcome with certainty. Following are some of the areas that require significant
judgments and estimates in the preparation of the financial statements and,
therefore, would be the areas where actual results could differ: useful lives
which are used to depreciate fixed assets and amortize intangible assets; asset
reserves related to receivables, inventory, and taxes; retirement plan
assumptions such as discount rates, asset returns, salary increases, and
retirement age; cash flow and valuation assumptions used in performing asset
impairment tests and purchase accounting; and assessments related to
contingencies including litigation, contract disputes, and environmental issues.
NEW ACCOUNTING STANDARDS
See Note 1 to the consolidated financial statements for information concerning
new accounting standards.
MARKET RISKS AND SENSITIVITY ANALYSIS
Like other global companies, Praxair is exposed to market risks relating to
fluctuations in interest rates and currency exchange rates. The objective of
financial risk management at Praxair is to minimize the negative impact of
interest rate and foreign exchange rate fluctuations on the Company's earnings,
cash flows and equity.
To manage these risks, Praxair uses various derivative financial
instruments, including, interest rate swap, forward starting interest rate swap
and currency swap, forward and option contracts and commodity contracts. Praxair
only uses commonly traded and non-leveraged instruments. These contracts are
entered into with major financial institutions thereby minimizing the risk of
credit loss. Also, refer to Notes 1 and 5 to the consolidated financial
statements for a more complete description of Praxair's accounting policies and
use of such instruments.
As required by Securities and Exchange Commission rules, the following
analysis present the sensitivity of the market value, earnings and cash flows of
Praxair's financial instruments to hypothetical changes in interest and exchange
rates as if these changes occurred at December 31, 2001. The range of changes
chosen for these analysis reflect Praxair's
29
MANAGEMENT'S DISCUSSION AND ANALYSIS
view of changes which are reasonably possible over a one-year period. Market
values are the present values of projected future cash flows based on the
interest rate and exchange rate assumptions. These forward-looking disclosures
are selective in nature and only address the potential impacts from financial
instruments. They do not include other potential effects, which could impact
Praxair's business as a result of these changes in interest and exchange rates.
Interest Rate and Debt Sensitivity Analysis
At December 31, 2001, Praxair has debt totaling $2,989 million ($3,141 million
at December 31, 2000) and interest rate swaps with a notional value of $850
million ($780 million in 2000, including forward starting swaps). Interest rate
swaps are entered into as a hedge of underlying financial instruments to
effectively change the characteristics of the interest rate without actually
changing the financial instrument. At December 31, 2001, the interest rate swap
agreements convert outstanding floating rate debt and lease payments to fixed
rate payments for the period of the swap agreements. For fixed rate instruments,
interest rate changes affect the fair market value but do not impact earnings or
cash flows. Conversely for floating rate instruments, interest rate changes
generally do not affect the fair market value but do impact future earnings and
cash flows, assuming other factors are held constant.
At December 31, 2001 after adjusting for the effect of interest rate swap
agreements, Praxair has fixed rate debt of $2,615 million ($2,567 at December
31, 2000) and floating rate debt of $374 million ($575 million in 2000) or about
87% and 13%, respectively, of total debt. Holding other variables constant (such
as foreign exchange rates, swaps and debt levels), a one percentage point
decrease in interest rates would increase the unrealized fair market value of
the fixed rate debt by approximately $85 million ($84 million in 2000). At
December 31, 2001, the after-tax earnings and cash flows impact for the next
year resulting from a one percentage point increase in interest rates would be
approximately $2 million ($4 million at December 31, 2000), holding other
variables constant.
Exchange Rate Sensitivity Analysis
Praxair's exchange rate exposures result primarily from its investments and
ongoing operations in South America (primarily Brazil and Argentina), Europe
(primarily Spain and Italy), Canada, Mexico, Asia (primarily China, India, Korea
and Thailand) and certain other business transactions such as the procurement of
equipment from foreign sources. Among other techniques, Praxair utilizes foreign
exchange forward contracts to hedge these exposures. At December 31, 2001
Praxair had $271 million notional amount ($248 million at December 31, 2000) of
foreign exchange contracts of which $161 million ($199 million in 2000) are to
hedge recorded balance sheet exposures or firm commitments, $97 million ($49
million in 2000) are to hedge anticipated future net income and $13 million are
to hedge net investments in foreign subsidiaries. At December 31, 2001 Praxair's
net income hedges relate to anticipated 2002 net income for its subsidiaries in
Brazil for six months and Korea, Mexico and Thailand for the year.
Holding other variables constant, if there were a ten percent adverse
change in foreign currency exchange rates, the fair market value of foreign
currency contracts outstanding at December 31, 2001 would decrease by
approximately $30 million ($26 million at December 31, 2000). Of this decrease,
about $11 million ($3 million at December 31, 2000) would impact earnings, $1
million would impact the cumulative translation adjustment component of
accumulated other comprehensive income (none at December 31, 2000) and the
remainder would be offset by an equal (gain) loss on the underlying exposure
being hedged.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations -- Praxair, Inc. (Praxair or Company) was founded in 1907 and became
an independent publicly traded company in 1992. Praxair is the largest
industrial gases company in North and South America, and one of the largest
worldwide. The Company is also the world's largest supplier of carbon dioxide.
Praxair produces, sells and distributes atmospheric, process and specialty
gases, and high-performance surface coatings to a diverse group of industries
including aerospace, chemicals, electronics, energy, food and beverage,
healthcare, manufacturing and metals.
Principles of Consolidation -- The consolidated financial statements include the
accounts of all significant subsidiaries where control exists. Equity
investments generally consist of 20-50% owned operations. Operations less than
20% owned are generally carried at cost. Pre-tax income from equity investments,
which are partnerships or limited liability corporations (LLC), is included in
other income (expenses) - net with related taxes included in income taxes.
Partnership and LLC net assets are reported as equity investments in the balance
sheet. Praxair does not allocate corporate costs to its equity investments.
Significant intercompany transactions are eliminated.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While actual results could differ, management believes such
estimates to be reasonable.
Revenue Recognition -- Revenue is recognized when product is shipped or services
are provided to customers. Revenues from long-term construction contracts are
recognized using the percentage-of-completion method. Under this method,
revenues for sales of major equipment, such as large air separation facilities,
are recognized primarily based on cost incurred to date compared with total
estimated cost. Changes to total estimated cost and anticipated losses, if any,
are recognized in the period determined.
Cash Equivalents -- Cash equivalents are considered to be highly liquid
securities with original maturities of three months or less.
Inventories-- Inventories are stated at the lower of cost or market. Cost is
determined generally using the last-in, first-out (LIFO) method for certain U.S.
operations and the average cost method for most other operations.
Property, Plant and Equipment - net -- Property, plant and equipment are carried
at cost, net of accumulated depreciation. Depreciation is calculated on the
straight-line method based on the estimated useful lives of the assets, which
range from 3 to 40 years. Praxair generally uses accelerated depreciation
methods for tax purposes where appropriate. The Company periodically reviews the
recoverability of long-lived assets based upon anticipated cash flows generated
from such assets.
Foreign Currency Translation -- For international subsidiaries where the local
currency is the functional currency, translation gains and losses are reported
as part of the accumulated other comprehensive income (loss) (cumulative
translation adjustment) component of shareholders' equity. For international
subsidiaries operating in hyperinflationary economies, the U.S. dollar is the
functional currency and translation gains and losses are included in income.
Financial Instruments -- Praxair enters into various derivative financial
instruments to manage its exposure to fluctuating interest and currency exchange
rates, and energy costs. Such instruments include interest rate swap and forward
rate agreements; currency swap, forward and option contracts; and commodity swap
agreements. These instruments are not entered into for trading purposes. Praxair
only uses commonly traded and non-leveraged instruments.
SFAS 133 Accounting Effective January 1, 2001 Praxair adopted Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS 137 and 138. SFAS 133
requires all derivatives to be recorded on the balance sheet at fair value.
Prior years' financial statements have not been restated for this change. Under
SFAS 133, there are two types of derivatives that the Company enters into:
hedges of fair value exposures and hedges of cash flow exposures. Fair value
exposures relate to recognized assets or liabilities, and firm commitments;
while cash flow exposures relate to the variability of future cash flows
associated with recognized assets or liabilities, or forecasted transactions.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When a derivative is executed and if hedge accounting is desired, it is
designated as either a fair value hedge or a cash flow hedge, and appropriate
documentation is prepared. Currently, Praxair designates all interest rate and
commodity swap agreements as hedges; however, currency contracts are generally
not designated as hedges for accounting purposes. All derivatives, whether
accounted for as hedges or not, are linked to an appropriate underlying
exposure. On an on-going basis, the Company assesses the hedge effectiveness of
all derivatives that are designated as hedges for accounting purposes in order
to determine that each derivative continues to be highly effective in offsetting
changes in fair values or cash flows of the hedged items. If it is determined
that it is not highly effective as a hedge, hedge accounting will be
discontinued prospectively.
Changes in the fair value of derivatives that are designated as fair value
hedges are recognized in earnings as offsets to the changes in fair values of
the exposures being hedged. The change in fair value of derivatives that are
designated as cash flow hedges are deferred in accumulated other comprehensive
income (loss) and are recognized in earnings as the hedged transactions occur.
Any ineffectiveness is recognized in earnings immediately. Derivatives that are
entered into for risk management purposes and are not designated as hedges under
SFAS 133 (primarily related to projected net income and currency derivatives
other than for firm commitments) are recorded at their fair market values and
recognized in current earnings.
Praxair records hedging activity related to debt instruments in interest
expense and hedging related to lease obligations and commodity contracts in
operating profit. The Company recognizes the changes in the fair value
associated with currency contracts as follows: hedges of balance sheet
exposures, firm commitments and anticipated future net income are recognized in
other income (expense) - net and generally offset the underlying hedged items;
hedges of net investments in foreign subsidiaries are recognized in the
cumulative translation adjustment component of accumulated other comprehensive
income (loss) on the consolidated balance sheet to offset translation gains and
losses associated with the hedged net investment.
Praxair uses the following methods and assumptions to estimate the fair
value of each class of financial instrument. The fair value of interest rate
swaps and currency exchange contracts is estimated based on market prices
obtained from dealer quotes. Such quotes represent the estimated amount the
Company would receive or pay to terminate the agreements taking into
consideration current rates and the credit worthiness of the counterparties (see
Note 5). The fair value of long-term debt is estimated based on the quoted
market prices for the same or similar issues. Due to their nature, the carrying
value of cash, short-term investments and short-term debt, receivables and
payables approximates fair value.
Previous Accounting Policy Through December 31, 2000 Interest rate swap and
forward rate agreements involve the exchange of fixed and floating interest
payments without the exchange of the underlying principal amounts. The
differential to be paid or received was recognized as an adjustment to interest
expense and operating profit for lease obligations. The notional amounts of
interest rate swap and forward rate agreements did not exceed the underlying
debt principal amounts. If an interest rate swap or forward rate agreement was
terminated before its maturity, any gain or loss was deferred and amortized as
interest expense over the remaining life of the underlying debt or the remaining
life of the swap, if shorter.
Currency swap, forward and option contracts were generally entered into to
hedge recorded balance sheet amounts related to international operations, firm
commitments that create currency exposures and projected net income. Gains and
losses on hedges of assets and liabilities were recorded in other income
(expenses) - net as offsets to the gains and losses from the underlying hedged
amounts; gains and losses on hedges of net investments were reported on the
balance sheet as part of the cumulative translation adjustment component of
accumulated other comprehensive income (loss) within shareholders' equity; and
gains and losses on hedges of firm commitments were recorded on the balance
sheet and included in the basis of the underlying transaction. Forward exchange
contracts that cover exposures which did not qualify for hedge accounting (e.g.,
net income hedges) were recorded in other income (expenses) - net on a fair
market value basis.
Patents, Trademarks, Other Intangibles And Goodwill -- Amounts paid for patents
and the excess of the purchase price over the fair value of the net assets of
acquired operations (goodwill) are recorded as other long-term assets (see Note
10). Patents are amortized over their remaining useful lives, while trademarks,
other intangibles and goodwill are amortized over the
32
estimated period of benefit, up to forty years. In accordance with SFAS 141,
goodwill related to acquisitions completed after June 30, 2001 has not been
amortized. The impact of this change was not significant (also, see a later
section in this footnote captioned, Recently Issued Accounting Standards, for a
description of new accounting standards for goodwill and other intangible
assets). Praxair periodically evaluates the recoverability of patents,
trademarks and goodwill by assessing whether the unamortized balance can be
recovered over its remaining life through cash flows generated by the underlying
tangible assets. Should the expected undiscounted cash flows be less than the
carrying amount of the intangible asset, an impairment loss would be recognized.
Research And Development -- Research and development costs are charged to
expense as incurred.
Income Taxes -- Deferred income taxes are recorded for the temporary differences
between the financial statement and tax bases of assets and liabilities using
current tax rates.
Retirement Programs -- Most Praxair employees worldwide are covered by various
pension plans. The cost of pension benefits under these plans is determined
using the "projected unit credit" actuarial cost method. Funding of pension
plans varies and is in accordance with local laws and practices.
Praxair accrues the cost of retiree life and health insurance benefits
during the employees' service period when such benefits are earned.
Postemployment Benefits -- Praxair recognizes the estimated cost of future
benefits provided to former and inactive employees after employment but before
retirement on the accrual basis.
Stock-Based Compensation -- Praxair accounts for incentive plans and stock
options using the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Pro forma information required by
SFAS No. 123, "Accounting for Stock-Based Compensation," is included in Note 9.
Earnings Per Share -- Basic earnings per share is computed by dividing net
income for the period by the weighted average number of Praxair common shares
outstanding. Diluted earnings per share is computed by dividing net income for
the period by the weighted average number of Praxair common shares outstanding
and dilutive common stock equivalents. The difference between the number of
shares used in the basic earnings per share calculation compared to the diluted
earnings per share calculation is due to the dilutive effect of outstanding
stock options. Stock options for 2,453,895, 6,662,005, and 4,604,610 shares were
not included in the computation of diluted earnings per share for the years
ended December 31, 2001, 2000, and 1999 respectively, because the exercise
prices were greater than the average market price of the common stock. All
references in the consolidated financial statements are to diluted earnings per
share unless stated otherwise.
Accounting Changes -- Effective January 1, 2001, Praxair adopted SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS 137 and 138. SFAS 133 requires all derivatives to be recorded on the
balance sheet at fair value. At January 1, 2001, Praxair recorded a one-time
after-tax charge as a cumulative effect adjustment for the initial adoption of
SFAS 133 totaling $2 million in its consolidated statement of operations, and a
deferred loss of $4 million in the accumulated other comprehensive income (loss)
component of shareholders' equity in the consolidated balance sheet (see Notes 5
and 6).
In accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities," Praxair recorded an after-tax charge of $10 million in the first
quarter of 1999 as the cumulative effect of an accounting change.
Recently Issued Accounting Standards -- In July 2001, the Financial Accounting
Standards Board (FASB) issued SFAS 141, "Business Combinations," and SFAS 142,
"Goodwill and Other Intangible Assets." SFAS 141, effective July 1, 2001,
establishes the accounting requirements for business combinations and requires
that business combinations initiated after June 30, 2001 use the purchase method
of accounting. SFAS 142 was effective for Praxair on January 1, 2002. Under this
standard, goodwill and indefinite life intangible assets will no longer be
amortized against earnings. Instead goodwill and indefinite life intangible
assets will be reviewed for impairment and written down and expensed only in the
period in which goodwill and indefinite life intangible assets recorded values
exceed their fair value. The impairment test is required on an annual basis and
on an interim basis if the occurrence of events indicates that the goodwill
might be impaired. For Praxair, an initial impairment test must be
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
performed on all reporting units in the first half of 2002, and any indicated
impairments will be recorded at that time. Goodwill amortization for the year
ended December 31, 2001 was $38 million ($33 million after tax). Praxair is
currently evaluating the impact on its consolidated results of operations,
financial position and cash flows of adopting this standard and will comply as
required. Any required impairment adjustments will be recorded as a cumulative
effect adjustment as of January 1, 2002.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations (ARO)," which is effective for Praxair in 2003. SFAS 143 requires
that contractual obligations associated with the retirement of tangible
long-lived assets be recorded as a liability when those obligations are
incurred, with the amount of the liability measured at discounted fair value.
The ARO would be capitalized and depreciated over the useful life of the related
asset. Upon adoption of the final Statement, an entity will use a
cumulative-effect approach to recognize transition amounts for existing ARO
liabilities, asset retirement costs, and accumulated depreciation. Praxair is
currently evaluating the impact on its consolidated results of operations,
financial position and cash flows of adopting this standard and will comply as
required.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 provides new guidance on the
recognition of impairment losses on long-lived assets to be held and used or to
be disposed of and also broadens the definition of what constitutes a
discontinued operation and how the results of a discontinued operation are to be
measured and presented. SFAS 144 is effective for Praxair in 2002 and is not
expected to materially change the methods used by the Company to measure
impairment losses on long-lived assets, but may result in more matters being
reported as discontinued operations than is permitted under current accounting
principles.
Reclassifications -- Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
2 SPECIAL CHARGES
2001 Restructuring and Other Actions
In the third quarter of 2001, Praxair recorded pre-tax charges totaling $70
million ($57 million after-tax, or $0.35 per diluted share) for severance and
other costs. Severance and certain other costs are associated with a restructure
program that responded to weaker economic conditions, an expected further
slowdown in the aviation industry and new business strategies in South America.
The charge also includes other actions related to asset sales and write-downs
and a benefit plan change made in the 2001 third quarter. The charges were
determined based on formal plans approved by management using the best
information available. Any differences with amounts ultimately incurred will be
adjusted when determined.
The severance costs totaling $40 million are for the elimination of
approximately 950 positions in connection with initiatives in all segments.
Other costs totaling $30 million include asset write-offs and plant closings,
partially offset by gains on sales of assets and investments totaling $9
million.
The North America actions relate primarily to the elimination of
approximately 280 positions in the U.S. industrial and packaged gases business,
with smaller reductions in Canada and Mexico. The actions also include certain
asset write-offs, partially offset by a benefit policy change of $6 million.
Praxair is accelerating implementation of new business strategies for South
America. The Company will place greater emphasis on cash flow generation and
focus sales growth on less capital-intensive technology and service initiatives.
About 130 positions are being eliminated and certain assets are being
written-down.
Surface Technologies is a leading supplier of high- performance coatings
and repair services for aircraft engines and parts. As a result of recent
events, Surface Technologies is anticipating a decline in commercial aircraft
engine production and servicing, which may be only partially offset by an
increase in military orders. As a result, Praxair is downsizing its aviation
business, which will reduce its workforce by about 310 positions and consolidate
service locations.
The Asia actions include the elimination of approximately 50 positions and
a gain on the sale of an equity investment. Corporate actions include the
elimination of approximately 140 positions in plant engineering and
construction, and corporate staff groups, consolidating and focusing its
industrial gases research and development
34
programs, including closing a research location, and certain asset write-offs.
Partially offsetting these costs was a gain on a property sale. The charge also
includes termination of about 40 positions in Europe.
The cash requirements of the restructuring charge and other actions are
estimated to be approximately $35 million (net of cash received from asset
sales) in total of which approximately $9 million has been paid through December
31, 2001, and the remainder will be paid over the next year. Through December
31, 2001, 750 personnel reductions have been made and the company estimates that
remaining actions will be completed in 2002.
The restructuring charge and other actions are recorded as follows: $7
million in cost of sales, $5 million in selling, general and administrative and
$58 million in other income (expense) - net (see Note 7).
2000 Repositioning Programs and Special Charges
In the fourth quarter of 2000, Praxair recorded pre-tax charges totaling $159
million and $2 million of equity income charges ($117 million after tax, or
$0.73 per diluted share) for severance and other costs associated with a
repositioning program that will realign Praxair's resources with its target
markets. The charge also includes costs related to asset write-downs associated
with non-strategic activities and related working capital. The charges were
determined based on formal plans approved by management using the best
information available. Any differences with amounts ultimately incurred will be
adjusted when determined.
The severance costs of $48 million are for the termination of 811 employees
in connection with initiatives in North and South America, Northern Europe,
Surface Technologies, Asia, global supply systems, and corporate. These
initiatives involved a number of actions to reorganize Praxair's marketing,
business support and administrative functions around the world in order to align
the organization more closely with its customers and to improve productivity. In
North America, the U.S. business has consolidated its operations into four
geographic regions and the segment has taken other actions to streamline the
organization and increase productivity. The South America and Europe initiatives
are related to ongoing productivity improvements. Praxair's Surface
Technologies' business has taken actions in the U.S., Europe and Asia to close
or consolidate various operations and facilities, and to improve productivity.
In the Asia and All Other segment, several actions included: (i) consolidation
of certain packaged gases operations and facilities in India; (ii) the shutdown
and write-off of investment in MetFabCity and e-business support activities in
India; and (iii) reduction of Corporate and global supply systems staff as a
result of continued productivity initiatives. In 2000, MetFabCity losses
recorded in consolidated operating profit were $12 million.
Other costs included plant closures, consolidations, or cancellations
(primarily in Asia and global supply systems in North America), and product-line
termination costs totaling $44 million; and, the write-off of non-strategic
assets totaling an additional $67 million. Non-strategic assets included
Praxair's investment in MetFabCity and other e-commerce initiatives ($22
million), future lease obligations for space that will no longer be used ($16
million), and various other assets and working capital write-offs or
write-downs.
The cash requirements of the repositioning program are estimated to be
approximately $67 million in total of which approximately $36 million has been
paid through December 31, 2001. The estimated payments in 2002 are $19 million,
and remaining amounts beyond 2002, primarily for long-term lease obligations,
will be paid through 2006.
The repositioning and special charges are recorded as follows: $47 million
in cost of sales, $21 million in selling, general and administrative and $91
million in other income (expenses) - net (see Note 7).
As of December 31, 2001, 795 employees have been terminated and the
remainder are expected to be terminated in the first quarter of 2002. Also,
during the third quarter, the Company made adjustments to the original accrual,
which were not significant.
Additionally, in the first quarter of 2000 Praxair initiated a program to
reposition the Surface Technologies operations as a result of adverse market
conditions in the aerospace original equipment and computer disk drive markets.
Praxair recorded a $5 million pre-tax charge to other income (expenses) - net,
including approximately $4 million for employee severance costs and $1 million
related to other exit costs. The program included the closure of two U.S.
facilities and headcount reductions of 150 employees located at these facilities
and others. As of December 31, 2000, the program is completed.
Refer to Note 10 for an analysis of the accrued liability balances related
to these and previous special charges.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 SEGMENT INFORMATION
Effective December 31, 2001, we redefined our segments to be in alignment
with the way our business is currently being managed. Accordingly, prior year
information has been restated to conform with this new presentation. The changes
are summarized as follows: (i) The All Other and Corporate segments have
effectively been eliminated - Asia is now shown as a separate segment; global
supply systems (which designs, engineers and builds equipment that produces
industrial gases for internal use and external sale) is now reported within the
segment where the sales occur; and corporate, global marketing, procurement and
other global support function costs are allocated to the operating segments,
primarily based on sales. The remaining All Other category includes only
unallocated corporate items. (ii) Several product lines servicing the
electronics industry, which were previously reported in Surface Technologies,
are now reported within the appropriate industrial gases segment, and (iii)
sales now include inter-segment sales with eliminations shown separately.
Praxair operates principally in the industrial gases business through four
reportable operating segments: North America, South America, Europe and Asia. In
addition, Praxair operates its worldwide Surface Technologies business through
its wholly-owned subsidiary, Praxair Surface Technologies, Inc. The All Other
category is composed of unallocated and/or one-time corporate items.
The accounting policies of the operating segments are the same as those
described in Note 1. Praxair evaluates the performance of its operating segments
based primarily on operating profit, excluding intercompany royalties and
special charges. Sales are determined based on the country in which the legal
subsidiary is domiciled. Corporate and globally-managed expenses, and research
and development costs relating to Praxair's global industrial gases business are
allocated to operating segments based on sales. Long-lived assets include
property, plant and equipment; and patents, trademarks and goodwill.
The table below presents information about reported segments for the years
ended December 31, 2001, 2000, and 1999:
[Enlarge/Download Table]
(MILLIONS OF DOLLARS)
SEGMENT INFORMATION 2001 | 2000 1999
---------------------------------------------------------------------------------------------
SALES: |
North America $ 3,434 | $ 3,294 $ 2,995
South America 674 | 727 697
Europe 537 | 542 529
Asia 255 | 220 146
Surface Technologies 410 | 414 390
Eliminations (152) | (154) (118)
----------------------------------------
Total sales $ 5,158 | $ 5,043 $ 4,639
========================================
|
SEGMENT OPERATING PROFIT:(a) |
North America $ 545 | $ 524 $ 473
South America(b) 129 | 161 155
Europe 119 | 128 116
Asia 38 | 23 10
Surface Technologies 39 | 34 51
All Other -- | (4) 26
----------------------------------------
Total segment operating profit $ 870 | $ 866 $ 831
========================================
|
TOTAL ASSETS:(c) |
North America $ 4,382 | $ 4,297 $ 4,132
South America 1,464 | 1,676 1,799
Europe 737 | 741 782
Asia 617 | 508 459
Surface Technologies 515 | 540 550
----------------------------------------
Total assets $ 7,715 | $ 7,762 $ 7,722
========================================
|
DEPRECIATION AND AMORTIZATION: |
North America $ 306 | $ 280 $ 264
South America 79 | 89 86
Europe 46 | 44 49
Asia 33 | 26 20
Surface Technologies 35 | 32 26
----------------------------------------
Total depreciation and amortization $ 499 | $ 471 $ 445
========================================
|
CAPITAL EXPENDITURES AND ACQUISITIONS: |
North America $ 491 | $ 368 $ 422
South America(d) 142 | 399 130
Europe 62 | 62 54
Asia 82 | 87 57
Surface Technologies 31 | 59 126
All Other(e) -- | 19 --
----------------------------------------
Total capital expenditures |
and acquisitions $ 808 | $ 994 $ 789
========================================
|
SALES BY MAJOR COUNTRY: |
United States $ 2,848 | $ 2,737 $ 2,518
Brazil 484 | 543 507
All Other Foreign 1,826 | 1,763 1,614
----------------------------------------
Total sales $ 5,158 | $ 5,043 $ 4,639
========================================
|
LONG-LIVED ASSETS BY MAJOR COUNTRY: |
United States $ 2,924 | $ 2,823 $ 2,752
Brazil 855 | 941 1,037
All Other Foreign 2,218 | 2,104 2,044
----------------------------------------
Total long-lived assets $ 5,997 | $ 5,868 $ 5,833
========================================
<FN>
(a) Praxair recorded pre-tax charges totaling $70 million in the third quarter
of 2001 and $159 million in the fourth quarter of 2000, which are not
included in Praxair's management reporting definition of operating profit
(see footnote 2 to the consolidated financial statements). Following is a
reconciliation of segment operating profit to reported operating profit for
the years ended:
</FN>
36
(MILLIONS OF DOLLARS)
SPECIAL CHARGES 2001 | 2000 1999
-----------------------------------------------------------------------
Segment operating profit $ 870 | $ 866 $ 831
Less special charges: |
North America (26) | (60) --
South America (30) | (8) --
Europe (3) | (9) --
Asia -- | (8) --
Surface Technologies (4) | (19) --
All Other (7) | (55) --
---------------------------------
Consolidated operating profit $ 800 | $ 707 $ 831
=================================
(b) 1999 includes a $21 million operating profit benefit from net income hedges
in Brazil that were effectively closed out in the 1999 first quarter.
(c) Includes equity investments as follows:
(MILLIONS OF DOLLARS)
EQUITY INVESTMENTS 2001 | 2000 1999
----------------------------------------------------------
North America $ 82 | $ 73 $ 71
Europe 76 | 75 77
Surface Technologies -- | -- 1
Asia 40 | 94 85
------------------------------
Total $198 | $242 $234
==============================
(d) Includes $2 million in 2001, and $242 million in 2000 related to the
acquisition of additional minority interests of White Martins in Brazil
(see Note 7)
(e) 2000 includes $19 million for MetFabCity, Inc., which was written-off at
the end of 2000.
4 INCOME TAXES
Pre-tax income applicable to U.S. and foreign operations is as follows:
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
------------------------------------------------------------------------------
United States $210 | $114 $262
Foreign 366 | 369 365
------------------------------
Total income before income taxes $576 | $483 $627
==============================
The following is an analysis of the provision for income taxes:
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
----------------------------------------------------------------------
Current tax expense (benefit) |
U.S. Federal $ 38 | $ (2) $ 39
State and local 3 | 4 11
Foreign 58 | 66 49
---------------------------------
Total current 99 | 68 99
=================================
|
DEFERRED TAX EXPENSE |
U.S. Federal 30 | 20 49
Foreign 6 | 15 4
---------------------------------
Total deferred 36 | 35 53
---------------------------------
Total income taxes $ 135 | $ 103 $ 152
=================================
Net deferred tax liabilities are comprised of the following:
(MILLIONS OF DOLLARS)
DECEMBER 31, 2001 | 2000
------------------------------------------------------------------
DEFERRED TAX LIABILITIES |
Fixed assets $716 | $715
State and local 11 | 11
Other 132 | 145
-----------------
Total deferred tax liabilities 859 | 871
=================
|
DEFERRED TAX ASSETS |
Benefit plans and related 170 | 175
Inventory 19 | 22
Alternative minimum tax and other credits 85 | 77
Carryforwards-- gross 92 | 98
Minimum pension liability 6 | --
Derivatives 2 | --
Other 91 | 119
-----------------
465 | 491
Less: Valuation allowances 6 | 10
-----------------
Total deferred tax assets 459 | 481
-----------------
Net deferred tax liabilities $400 | $390
=================
An analysis of the difference between the provision for income taxes and the
amount computed by applying the U.S. statutory income tax rate to pre-tax income
follows:
[Enlarge/Download Table]
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
----------------------------------------------------------------------------------------------------------
$ % | $ % $ %
----------------------------------------------------------------------------------------------------------
U.S. statutory income |
tax rate 202 35.0 | 169 35.0 219 35.0
State and local taxes 2 0.3 | 3 0.6 7 1.1
U.S. tax credits (6) (1.0) | (6) (1.2) (4) (0.6)
Foreign taxes (47) (8.2) | (49) (10.2) (72) (11.6)
Other-net (16) (2.7) | (14) (2.9) 2 0.3
-------------------------------------------------------------------------
Provision for income taxes 135 23.4 | 103 21.3 152 24.2
=========================================================================
The valuation allowances decreased $4 million in 2001 (increased $5 million
in 2000 and decreased $1 million in 1999) all relating to foreign net operating
loss carryforwards activity. At December 31, 2001, Praxair has approximately $6
million of foreign net operating loss carryforwards that expire principally
through 2006, for which the deferred tax asset has been fully reserved by
valuation allowances.
During 2001, Canada and Mexico decreased their top marginal tax rate.
During 2000, Italy decreased its top marginal tax rate. During 1999, France,
Japan and the United Kingdom decreased and Brazil increased their top marginal
tax rate. The effects of these tax rate changes were immaterial.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provision has not been made for additional federal or foreign taxes at
December 31, 2001 on $1,142 million of undistributed earnings of foreign
subsidiaries that are planned to be reinvested indefinitely. These earnings
could become subject to additional tax if they were remitted as dividends,
loaned to Praxair, or upon sale of the subsidiary's stock. It is not practicable
to estimate the amount or timing of the additional tax, if any, that might
eventually be payable on the foreign earnings.
5 DEBT AND FINANCIAL INSTRUMENTS
Debt -- The following is a summary of Praxair's outstanding debt at
December 31, 2001 and 2000:
[Enlarge/Download Table]
(MILLIONS OF DOLLARS)
DEBT 2001 | 2000
-------------------------------------------------------------------------------------
SHORT-TERM |
Canadian borrowings $ -- | $ 5
South American borrowings 90 | 73
Other International borrowings 88 | 81
---------------------
Total short-term debt 178 | 159
=====================
|
LONG-TERM |
U.S.: |
Commercial paper and U.S. bank borrowings 716 | 852
6.70% Notes due 2001 -- | 250
6.625% Notes due 2003 75 | 75
6.75% Notes due 2003 300 | 300
6.15% Notes due 2003 250 | 250
6.85% Notes due 2005 150 | 150
6.90% Notes due 2006 250 | 250
6.625% Notes due 2007 250 | 250
6.50% Notes due 2008 250 | --
8.70% Debentures due 2022 |
(Redeemable on or after July 15, 2002) 300 | 300
Other borrowings 41 | 42
Canadian borrowings 113 | 176
South American borrowings 35 | 66
Other International borrowings 74 | 14
Obligations under capital leases 7 | 7
---------------------
2,811 | 2,982
Less: current portion of long-term debt 86 | 341
---------------------
Total long-term debt 2,725 | 2,641
---------------------
Total debt $2,989 | $3,141
=====================
On March 1, 2001, Praxair issued $250 million 6.50% notes maturing March 1,
2008. The proceeds were used to repay outstanding commercial paper and other
short-term borrowings. On April 16, 2001, Praxair repaid the $250 million 6.70%
notes that were due on that date.
In July 2001, $65 million of long-term debt was assumed through the
consolidation of an equity company in India. At December 31, 2001, the balance
of this debt was $63 million.
In July 2000, Praxair entered into two new credit agreements, that expire
through 2005, totaling $1.5 billion to support commercial paper. At December 31,
2001 and 2000, $716 million and $852 million, respectively, of short-term
borrowings were classified as long-term debt because of the Company's intent to
refinance this debt on a long-term basis and the availability of such financing
under the terms of the credit agreements. No borrowings were outstanding under
the credit agreements at December 31, 2001 or 2000. At December 31, 2001 and
2000, the weighted-average interest rate on commercial paper and U.S bank
borrowings was 4.4% and 6.6%, respectively.
Praxair's major bank credit and long-term debt agreements contain various
covenants which may, among other things, restrict the ability of Praxair to
merge with another entity, incur or guarantee debt, sell or transfer certain
assets, create liens against assets, enter into sale and leaseback agreements,
or pay dividends and make other distributions beyond certain limits. These
agreements also require Praxair to meet leverage net worth ratios. At December
31, 2001, Praxair was in compliance with all such covenants.
Excluding commercial paper and U.S. bank borrowings, scheduled maturities
on long-term debt are: 2002, $86 million; 2003, $699 million; 2004, $34 million;
2005, $172 million; 2006, $279 million and $825 million thereafter. At December
31, 2001, $142 million of Praxair's assets (principally international fixed
assets) were pledged as security for long-term debt including the current
portion of long-term debt.
At December 31, 2001, the estimated fair value of Praxair's long-term debt
portfolio was $2,886 million versus a carrying value of $2,811 million. At
December 31, 2000, the estimated fair value of long-term debt was $2,985 million
versus a carrying value of $2,982 million. These differences are attributable to
interest rate changes subsequent to when the debt was issued.
Financial Instruments -- Praxair has entered into various fixed interest rate
swap agreements that effectively convert variable rate interest and lease
payments to fixed rate interest and lease payments. At December 31, 2001 and
2000 respectively, Praxair had $850 million and $780 million notional amount
(including $350 million notional amount of forward starting swaps in 2000) of
interest rate swap agreements outstanding. The scheduled maturities of the
outstanding swap agreements are: 2002, $750 million and 2003, $100 million. The
fair market value of these swaps at December 31, 2001 and 2000 was a loss of $6
million and $7 million, respectively. These swap agreements have been
38
designated as, and are effective as, cash flow hedges of outstanding debt
instruments or lease obligations. During 2001, Praxair recorded the change in
fair value to accumulated other comprehensive income (loss) and reclassified to
earnings a portion of the deferred loss from accumulated other comprehensive
income (loss) as the hedged transactions occurred and were recognized in
earnings. Any ineffectiveness was also recorded and was not significant. Praxair
expects to reclassify the after-tax deferred losses of $4 million ($6 million
pre-tax) from accumulated other comprehensive income (loss) to earnings in the
next twelve months as the hedged transactions occur: $5 million to increase
interest expense and $1 million to reduce operating profit. Praxair also has
three outstanding commodity swap agreements to hedge its exposure to the
variability in future cash flows for forecasted purchases of natural gas. These
swap agreements have been designated as, and are effective as cash flow hedges
of forecasted purchases. The impact of these commodity swaps was not
significant.
Praxair is also a party to currency exchange forward contracts to manage
its exposure to changing currency exchange rates that all mature within one
year. At December 31, 2001 and 2000, respectively, Praxair had $271 million and
$248 million of currency exchange forward contracts outstanding: $160 million to
hedge recorded balance sheet exposures ($195 million in 2000), $1 million to
hedge firm commitments generally for the purchase of equipment related to
construction projects ($4 million in 2000), $97 million to hedge anticipated
future net income ($49 million in 2000) and $13 million to hedge net investments
in foreign subsidiaries (none in 2000). Additionally, there are $7 million
notional value of currency exchange contracts that effectively offset ($6
million in 2000). The net income hedges are related to anticipated 2002 net
income in Brazil for six months, and Mexico, Korea and Thailand for the full
year. The amount recorded in other income (expense)-net in 2001 as a result of
recognizing these derivatives at fair value was a loss of approximately $3
million (primarily for the hedges of anticipated future net income). The amount
recorded in the cumulative translation adjustment component of accumulated other
comprehensive income (loss) for the net investment contracts was a loss of
approximately $1 million. At December 31, 2000 the fair market value of currency
exchange contracts approximated the carrying amount and the deferred gains and
losses on these contracts were not material. Effective in 2001, all derivative
contracts are recorded at market value.
The following table is a summary of the notional amount of derivatives
outstanding at December 31, 2001 and 2000:
[Download Table]
(MILLIONS OF DOLLARS)
DERIVATIVE INSTRUMENT MATURITY 2001 2000
------------------------------------------------------------------------------------
Interest rate swaps:
Floating to fixed less than 1 Year $750 $330
Floating to fixed* 1-2 years $100 450
Currency Contracts:
Balance sheet items less than 1 Year 160 195
Firm commitments less than 1 Year 1 4
Anticipated net income less than 1 Year 97 49
Net investments less than 1 Year 13 --
------------------------------------------
* 2000 includes $350 million of forward starting swaps.
At December 31, 2001, the fair value of all derivative instruments has been
recorded in the consolidated balance sheet as follows: $1 million in current
assets and $12 million in current liabilities.
In January 1999, Praxair entered into currency exchange forward contracts
totaling $325 million for estimated Brazilian net income in 1999 and to hedge a
portion of its Brazilian net investment. The net income hedge contracts resulted
in a pre-tax gain of $21 million ($14 million after tax and minority interest)
and the net investment hedge contracts resulted in a gain of approximately $60
million (after tax and minority interest) which was recognized on the balance
sheet in the accumulated other comprehensive income (loss) (cumulative
translation adjustment) component of shareholders' equity. The cash proceeds
relating to the pre-tax gain on the net investment hedges (approximately $89
million) is shown in the financing section of the consolidated statement of cash
flows under the caption "Minority transactions and other," and the pre-tax gain
relating to the net income hedges is shown under the caption "Net Income" in
operating cash flows.
Counterparties to interest rate derivative contracts and currency exchange
forward contracts are major financial institutions with credit ratings of
investment grade or better and no collateral is required. There are no
significant risk concentrations. Management believes the risk of incurring
losses on derivative contracts, including commodity swaps, related to credit
risk is remote and any losses would be immaterial.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 SHAREHOLDERS' EQUITY
At December 31, 2001, there were 500,000,000 shares of common stock
authorized (par value $.01 per share) of which 170,140,567 shares were issued
and 162,142,840 were outstanding.
The Board of Directors of Praxair declared a dividend distribution of one
common stock purchase right (a "Right") for each share of Praxair's common stock
outstanding at the close of business on June 30, 1992. The holders of any
additional shares of Praxair's common stock issued after June 30, 1992 and
before the redemption or expiration of the Rights are also entitled to one Right
for each such additional share. Each Right entitles the registered holders,
under certain circumstances, to purchase from Praxair one share of Praxair's
common stock at $47.33 (subject to adjustment). At no time will the Rights have
any voting power.
The Rights may not be exercised until 10 days after a person or group
acquires 15 percent or more of Praxair's common stock, or announces a tender
offer that, if consummated, would result in 15 percent or more ownership of
Praxair's common stock. Separate Rights certificates will not be issued and the
Rights will not be traded separately from the stock until then.
Should an acquirer become the beneficial owner of 15 percent or more of
Praxair's common stock (other than as approved by Praxair's Board of Directors)
and under certain additional circumstances, Praxair Rightholders (other than the
acquirer) would have the right to buy common stock in Praxair, or in the
surviving enterprise if Praxair is acquired, having a value of two times the
exercise price then in effect. Also, Praxair's Board of Directors may exchange
the Rights (other than the acquirer's Rights which will have become void), in
whole or in part, at an exchange ratio of one share of Praxair common stock
(and/or other securities, cash or other assets having equal value) per Right
(subject to adjustment).
The Rights will expire on June 30, 2002, unless exchanged or redeemed prior
to that date. The redemption price is $0.001 per Right. Praxair's Board of
Directors may redeem the Rights by a majority vote at any time prior to the 20th
day following public announcement that a person or group has acquired 15 percent
of Praxair's common stock. Under certain circumstances, the decision to redeem
requires the concurrence of a majority of the independent directors.
7 SUPPLEMENTARY INCOME STATEMENT INFORMATION
(MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
-----------------------------------------------------------------------------
COST OF SALES |
Cost of sales $ 3,053 | $ 3,028 $ 2,732
Special charges(a) 7 | 47 --
----------------------------------------
$ 3,060 | $ 3,075 $ 2,732
========================================
|
SELLING, GENERAL AND |
ADMINISTRATIVE |
Selling $ 334 | $ 329 $ 314
General and administrative 360 | 333 327
Special charges(a) 5 | 21 --
----------------------------------------
$ 699 | $ 683 $ 641
========================================
|
DEPRECIATION AND AMORTIZATION |
Depreciation and other $ 461 | $ 438 $ 413
Goodwill amortization 38 | 33 32
----------------------------------------
$ 499 | $ 471 $ 445
========================================
|
OTHER INCOME (EXPENSES)-- NET |
Investment income $ 10 | $ 10 $ 9
Currency(b) (3) | 10 38
Partnership income 13 | 9 7
Special charges(a) (58) | (91) --
Other 4 | 20 23(c)
----------------------------------------
$ (34) | $ (42) $ 77
========================================
|
INTEREST EXPENSE |
Interest incurred on debt $ 241 | $ 248 $ 234
Interest capitalized (17) | (24) (30)
----------------------------------------
$ 224 | $ 224 $ 204
========================================
|
MINORITY INTERESTS |
Minority interests(d) $ (16) | $ (24) $ (39)
Preferred stock dividends (2) | (3) (6)
----------------------------------------
$ (18) | $ (27) $ (45)
========================================
(a) During the third quarter 2001, Praxair recorded pre-tax special charges
totaling $70 million and in 2000, Praxair recorded pre-tax special charges
totaling $159 million (see Note 2).
(b) Includes net losses from net income hedges in 2001 and net gains in 2000
and 1999, primarily in Brazil, Mexico and Europe. 1999 includes a $21
million gain related to net income hedges in Brazil (see Note 5).
(c) Includes $50 million of income related to the redemption of preference
shares from an earlier business sale and $12 million of income related to
the collection of a note receivable from an earlier business sale, with
offsetting costs related to postemployment benefits and an anticipated loss
on the sale of an air separation plant under construction for a third
party.
(d) As a result of a tender offer in 2000 and a rights offering in 1999,
Praxair increased its ownership interest in its South American subsidiary,
S.A. White Martins (White Martins), from 69.3% at December 31, 1998 to
76.6% at December 31, 1999, 98.6% at December 31, 2000, and 99.2% at
December 31, 2001. Praxair paid $2 million and $242 million in connection
with the tender offer in 2001 and 2000, respectively, and as consideration
for the additional shares it purchased during the rights offering in 1999,
Praxair used approximately $138 million of intercompany loans it had
previously made to White Martins. Approximately $15 million of the 1999
rights offering was purchased by minority shareholders.
8 PREFERRED STOCK
At December 31, 2001 and 2000, there were 25,000,000 shares of preferred
stock (par value $.01 per share) authorized, of which, 200,000 shares were
issued and outstanding at December 31, 2001 and 2000. No dividends may be paid
on Praxair common stock unless preferred stock dividends have been paid, and the
preferred stock has limited voting rights. Dividends are included in
40
minority interests on the consolidated statement of income. Following is a
summary of the Series B Preferred Stock outstanding at December 31, 2001 and
2000:
Series B Preferred Stock -- There are 200,000 outstanding shares of Praxair
6.75% Cumulative Preferred Stock, Series B which are entitled to receive
cumulative annual dividends of $6.75 per share, payable quarterly. The Series B
Preferred Stock is mandatorily redeemable on, but not prior to, September 5,
2002 at a price of $100 per share and has a liquidation preference of $100 per
share.
9 INCENTIVE PLANS AND STOCK OPTIONS
As of March 1, 2001, the 1996 Praxair, Inc. Performance Incentive Plan (the
"1996 Plan") was terminated, and at December 31, 2001, the 1992 Praxair
Long-Term Incentive Plan (the "1992 Plan") expired. Stock option and other
long-term incentive compensation awards granted by the Company through December
31, 2001 were made under these plans. Both plans provided for granting
nonqualified or incentive stock options, stock grants, performance awards, and
other stock-related incentives for key employees. The exercise price for
Incentive Stock Options granted under these plans was required to be equal to
the closing price of Praxair's common stock on the date of the grant. Options
that were granted under both plans become exercisable only after one or more
years and the term of such granted options do not exceed ten years.
On February 28, 2001, the Board of Directors of the Company adopted the
2002 Praxair, Inc. Long-Term Incentive Plan (the "2002 Plan"), which became
effective on January 1, 2002. The shareholders then approved the Plan at
Praxair's annual meeting in April 2001. Under the 2002 Plan, the number of
shares available for option or stock grants is limited to a total of 7,900,000
shares for the ten-year term of the Plan. The 2002 Plan provides for the
granting of only nonqualified and incentive stock options, stock grants and
performance awards and further provides that the aggregate number of shares
granted as restricted stock or pursuant to performance awards may not exceed 20%
of the total shares available under the Plan. The 2002 Plan also provides
calendar year per-participant limits on grants of options, restricted stock and
performance awards. Exercise prices for options granted under the 2002 Plan may
not be less than the closing market price of the Company's common stock on the
date of grant and granted options may not be repriced or exchanged without
shareholder approval. Options granted under the 2002 Plan become exercisable
after a minimum of one year and have a maximum duration of ten years. Both
officer and non-officer employees are eligible for awards under the 2002 Plan.
In 1997, Praxair initiated a three-year long-term incentive program by
granting performance share equivalents and stock options to corporate officers
and other key employees. According to a pre-determined formula based on earnings
per share growth, 652,421 share equivalents vested on January 1, 2000 and were
distributed, primarily in shares of Praxair, Inc. common stock, in March 2000.
Pre-tax compensation expense related to this plan totaled $33 million over a
three-year period ending in 1999 ($10 million in 1999, $8 million in 1998 and
$15 million in 1997).
The following table summarizes the changes in outstanding shares under
option and performance share equivalents for 2001, 2000, and 1999 (options in
thousands):
STOCK OPTIONS
--------------------------
AVERAGE PERFORMANCE
EXERCISE SHARE
ACTIVITY OPTIONS PRICE EQUIVALENTS
---------------------------------------------------------------------------
Outstanding at
December 31, 1998 11,972 $ 28.17 951
Granted 2,946 $ 40.98 --
Exercised (2,138) $ 19.48 --
Cancelled or expired (104) $ 44.78 (299)
-----------------------------------------
Outstanding at
December 31, 1999 12,676 $ 32.47 652
Granted 3,050 $ 42.40 --
Exercised (1,001) $ 15.19 --
Vested -- -- (652)
Cancelled or expired (179) $ 43.72 --
-----------------------------------------
Outstanding at
December 31, 2000 14,546 $ 35.60 --
Granted 4,522 $ 47.05 --
Exercised (3,443) $ 26.00 --
Cancelled or expired (123) $ 44.38 --
-----------------------------------------
Outstanding at
December 31, 2001* 15,502 $ 41.01 --
-----------------------------------------
Options exercisable at:
December 31, 1999 6,650 $ 23.86
December 31, 2000 8,684 $ 31.48
December 31, 2001* 8,052 $ 37.12
=========================================
* The following table summarizes information about options outstanding and
exercisable at December 31, 2001 (options in thousands, life in years):
[Enlarge/Download Table]
OUTSTANDING EXERCISABLE
--------------------------------------- ------------------------
AVERAGE NUMBER AVERAGE NUMBER AVERAGE
RANGE OF REMAINING OF EXERCISE OF EXERCISE
EXERCISE PRICES LIFE OPTIONS PRICE OPTIONS PRICE
-------------------------------------------------------------------------------------
$13.95 - $24.38 1.8 1,895 $ 17.82 1,895 $ 17.82
$26.25 - $36.25 6.4 1,585 $ 33.86 1,536 $ 33.87
$36.44 - $46.00 8.3 7,547 $ 42.80 1,887 $ 42.98
$46.13 - $56.13 7.2 4,475 $ 50.34 2,734 $ 48.27
-------------------------------------------------------------------------------------
$13.95 - $56.13 7.0 15,502 $ 41.01 8,052 $ 37.12
-------------------------------------------------------------------------------------
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma information:
SFAS 123 requires Praxair to disclose pro forma net income and pro forma
earnings per share amounts as if compensation expense was recognized for options
granted after 1994. Using this approach, pro forma net income and the related
basic and diluted earnings per share amounts would be as follows:
[Enlarge/Download Table]
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
---------------------------------------------------------------------------------------------
NET INCOME: |
As reported $ 430 | $ 363 $ 431
Pro forma $ 398 | $ 335 $ 411
|
BASIC EARNINGS PER SHARE: |
As reported $ 2.67 | $ 2.28 $ 2.71
Pro forma $ 2.46 | $ 2.11 $ 2.58
|
DILUTED EARNINGS PER SHARE: |
As reported $ 2.63 | $ 2.25 $ 2.66
Pro forma $ 2.43 | $ 2.08 $ 2.53
-------------------------------------------
The weighted average fair value of options granted during 2001 was $16.15
($15.46 in 2000 and $13.80 in 1999). These values, which were used as a basis
for the pro forma disclosures, were estimated using the Black-Scholes
Options-Pricing Model with the following weighted average assumptions used for
grants in 2001, 2000, and 1999:
YEAR ENDED DECEMBER 31, 2001 | 2000 1999
------------------------------------------------------------------------
Dividend yield 1.15% | 1.0% 1.0%
Volatility 35.6% | 33.0% 31.0%
Risk-free interest rate 4.7% | 6.4% 5.5%
Expected term - years 5.0 | 5.0 5.0
-------------------------------------
These pro forma disclosures may not be representative of the effects for
future years since options vest over several years, and additional awards
generally are made each year.
10 SUPPLEMENTARY BALANCE SHEET INFORMATION
(MILLIONS OF DOLLARS)
DECEMBER 31, 2001 | 2000
----------------------------------------------------------------------------
ACCOUNTS RECEIVABLE |
Trade $ 889 | $ 873
Other 27 | 39
--------------------------
916 | 912
Less: allowance for doubtful accounts(a) 59 | 36
--------------------------
$ 857 | $ 876
==========================
Inventories(b) |
Raw materials and supplies $ 87 | $ 98
Work in process 36 | 38
Finished goods 164 | 161
--------------------------
$ 287 | $ 297
==========================
PROPERTY, PLANT AND EQUIPMENT - NET |
Land and improvements $ 233 | $ 199
Buildings 579 | 566
Machinery and equipment 8,047 | 7,589
Construction in progress and other 383 | 539
--------------------------
9,242 | 8,893
Less: accumulated depreciation (4,425) | (4,122)
--------------------------
$ 4,817 | $ 4,771
==========================
|
OTHER LONG-TERM ASSETS |
Goodwill(c) $ 1,136 | $ 1,082
Patents, trademarks and other(c) 44 | 15
Deposits(d) 23 | 35
Other 221 | 256
--------------------------
$ 1,424 | $ 1,388
==========================
|
OTHER CURRENT LIABILITIES |
Accrued accounts payable $ 132 | $ 136
Payrolls 74 | 93
Employee benefits and related 36 | 25
Special charges(e) 45 | 59
Accrued interest payable 45 | 39
Other 105 | 107
--------------------------
$ 437 | $ 459
==========================
|
OTHER LONG-TERM LIABILITIES |
Employee benefits and related $ 447 | $ 441
Special charges(e) 26 | 19
Other(d) 78 | 88
--------------------------
$ 551 | $ 548
==========================
|
DEFERRED CREDITS |
Income taxes(f) $ 442 | $ 461
Deferred gain on sale |
leaseback (Note 12) 152 | 152
Other 13 | 6
--------------------------
$ 607 | $ 619
==========================
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Cumulative Translation Adjustment |
North America $ (170) | $ (172)
South America(g) (822) | (592)
Europe (189) | (173)
Asia (77) | (58)
Surface Technologies (23) | (16)
--------------------------
$(1,281) | $(1,011)
Derivatives (net of $2 million tax)(h) (4) | --
Minimum Pension Liability |
(net of $6 million tax) (12) | --
--------------------------
$(1,297) | $(1,011)
==========================
(a) Provisions to the allowance for doubtful accounts were $35 million, $19
million and $22 million in 2001, 2000, and 1999, respectively.
(b) Approximately 26% of total inventories were valued using the LIFO method at
December 31, 2001 (33% in 2000). If inventories had been valued at current
costs, they would have been approximately $28 million higher than reported
at December 31, 2001 and 2000.
(c) Net of accumulated amortization of $192 million in 2001 and $162 million in
2000 for goodwill and $22 million in 2001 and $18 million in 2000 for other
intangibles.
(d) $31 million and $35 million of other long-term assets and other long-term
liabilities in Brazil have been offset in 2001 and 2000, respectively.
(e) The table below summarizes the activity (primarily new charges, cash
payments and asset write-offs) in the accrual for special charges. The
accrual primarily includes special programs in 2000 and 2001 as described
further in Note 2. The remaining other charges at December 31, 2001 are
related to the 2001 and 2000 restructuring and repositioning programs and
future lease payments from earlier programs (primarily the 1996 charge
related to the integration of the Liquid Carbonic business of CBI and
Praxair).
42
[Enlarge/Download Table]
(MILLIONS OF DOLLARS)
OTHER TOTAL
ACCRUAL-SPECIAL CHARGES SEVERANCE CHARGES ACCRUAL
------------------------------------------------------------------------------------
Balance, December 31, 1998 $ -- $ 18 $ 18
1999 activity -- (6) (6)
----------------------------------
Balance, December 31, 1999 -- 12 12
Surface Technologies repositioning 4 1 5
Repositioning and special charges 48 111 159
2000 activity (7) (91) (98)
----------------------------------
Balance, December 31, 2000 45 33 78
Restructuring and other actions 40 30 70
Adjustments to 2000
Repositioning program (4) 4 --
Other 2001 activity (36) (41) (77)
----------------------------------
Balance, December 31, 2001 $ 45 $ 26 $ 71
==================================
(f) Deferred income taxes related to current items are included in prepaid and
other current assets in the amount of $42 million in 2001 and $71 million
in 2000. The decrease in 2001 is primarily a result of the activity in the
restructure programs (see Note 2).
(g) Consists primarily of currency translation adjustments in Brazil and
Argentina and is net of a $60 million gain related to Brazilian net
investment hedges (see Note 5). Argentina suspended the trading in its
currency before year-end (when the exchange rate was at parity with the
U.S. dollar), and did not resume trading until January 11, 2002. The
balance sheet for Praxair's operations in Argentina as of December 31, 2001
has been translated at a rate of 1.7 Argentine pesos to 1 U.S. dollar. This
devaluation of the Argentine Peso resulted in a charge of approximately $62
million to Other Comprehensive Income (Loss) in Shareholders Equity. The
average rate of translating the income statement was unaffected by the
devaluation and was translated at a 1:1 ratio.
(h) The derivatives component of accumulated other comprehensive income (loss)
relates to the adoption of SFAS 133 (see Notes 1 and 5). The table below
summarizes the 2001 activity:
DERIVATIVES (MILLIONS OF DOLLARS)
-----------------------------------------------------------------
Transition Adjustment, January 1, 2001 $ (4)
2001 Activity:
Change in fair value (25)
Reclassified to earnings - interest expense 17
Reclassified to earnings - operating profit 8
-----
Balance, December 31, 2001 $ (4)
=====
11 RETIREMENT PROGRAMS
Pensions-- Praxair has two main U.S. retirement programs which are
non-contributory defined benefit plans, the Praxair Retirement Program and the
CBI Retirement Program. Pension benefits for both are based predominantly on
years of service, age and compensation levels prior to retirement. Pension
coverage for employees of Praxair's international subsidiaries generally is
provided by those companies through separate plans. Obligations under such plans
are typically provided for by depositing funds with trustees, under insurance
policies, or by book reserves.
Praxair's North American packaged gases business has two defined
contribution plans. Company contributions to these plans are calculated as a
percentage of salary based on age plus service. U.S. employees may supplement
the company contributions up to the maximum allowable by IRS regulations.
Certain international subsidiaries of the Company (including White Martins in
Brazil, effective in 2000) also sponsor defined contribution plans where
contributions are determined under various formulas. The cost for these plans
was $7 million in 2001 and 2000, and $5 million in 1999 (not included in the
tables that follow).
U.S. employees other than the packaged gas business are eligible to
participate in a defined contribution savings plan. Employees may contribute up
to 18% of their compensation, subject to the maximum allowable by IRS
regulations. Company contributions to this plan are calculated on a graduated
scale based on employee contributions to the plan. The cost for this plan was
$10 million in 2001, 2000 and 1999 (not included in the tables that follow).
Postretirement Benefits Other Than Pensions (OPEB) -- Praxair provides health
care and life insurance benefits to certain eligible retired employees. These
benefits are provided through various insurance companies and health care
providers. Praxair is also obligated to make payments for a portion of
postretirement benefits related to retirees of Praxair's former parent.
Additionally, as part of the CBI acquisition in 1996, Praxair assumed
responsibility for health care and life insurance benefit obligations for CBI's
retired employees. All postretirement health care programs have cost caps that
limit the Company's exposure to future cost increases. Praxair does not
currently fund its postretirement benefits obligations. Praxair retiree plans
may be changed or terminated by Praxair at any time for any reason with no
liability to current or future retirees.
Pension and Postretirement Benefit Costs
The components of net pension and OPEB costs for 2001, 2000 and 1999 are shown
below:
[Enlarge/Download Table]
(MILLIONS OF DOLLARS)
PENSIONS OPEB
-------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, 2001 | 2000 1999 2001 | 2000 1999
------------------------------------------------------------------------------------------------------------
NET BENEFIT COST | |
Service cost $ 26 | $ 30 $ 35 $ 5 | $ 6 $ 7
Interest cost 67 | 64 63 14 | 15 13
Expected return on assets (81) | (78) (72) -- | -- --
Curtailment/ | |
Settlement (gains) -- | (6) -- -- | -- --
Net amortization and deferral (3) | (3) (1) (4) | (5) (7)
-----------------------------------------------------------------------
Net periodic benefit cost $ 9 | $ 7 $ 25 $ 15 | $ 16 $ 13
=======================================================================
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in benefit obligation and plan assets and the funded status
reconciliation as of December 31, 2001 and 2000 for Praxair's significant
pension and OPEB programs are shown below:
[Enlarge/Download Table]
(MILLIONS OF DOLLARS)
PENSIONS
----------------------------------------------
2001 | 2000 OPEB
-----------------------------------------------------------------------
YEAR END DECEMBER 31, US INTL | US INTL 2001 2000
----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION |
Benefit obligation, January 1 $ 705 $ 243 | $ 661 $ 310 $ 230 $ 215
Service cost 18 8 | 22 8 4 6
Interest cost 54 14 | 50 15 15 16
Participant contributions -- -- | -- -- 11 9
Plan amendments -- -- | (9) -- 8 (9)
Actuarial loss (gain) 19 -- | 18 (4) (14) 20
Benefits paid (37) (18) | (37) (18) (28) (25)
Curtailment/Settlement (gains) -- -- | -- (50) -- --
Currency translation -- (11) | -- (18) (2) (2)
-----------------------------------------------------------------------
Benefit obligation, December 31 $ 759 $ 236 | $ 705 $ 243 $ 224 $ 230
=======================================================================
|
CHANGE IN PLAN ASSETS |
Fair value of plan assets, January 1 $ 666 $ 259 | $ 696 $ 299 $ -- $ 5
Actual return on plan assets (30) 8 | (2) 20 -- --
Company contributions -- 3 | -- 2 -- --
Curtailment/Settlement (gains) -- -- | -- (35) -- --
Benefits paid (31) (18) | (28) (18) -- (5)
Currency translation -- (11) | -- (9) -- --
-----------------------------------------------------------------------
Fair value of plan assets, December 31 $ 605 $ 241 | $ 666 $ 259 $ -- $ --
=======================================================================
|
FUNDED STATUS RECONCILIATION |
Funded status, December 31 $(154) $ 5 | $ (39) $ 16 $(224) $(230)
Unrecognized (gains) losses - net 45 (17) | (66) (34) 2 14
Unrecognized prior service cost (5) 2 | (5) 2 (14) (24)
Unrecognized transition amount -- (1) | -- (2) -- --
-----------------------------------------------------------------------
Net amount recognized, December 31 $(114) $ (11) | $(110) $ (18) $(236) $(240)
=======================================================================
|
AMOUNTS IN THE BALANCE SHEET: |
Prepaid benefit cost $ -- $ 2 | $ -- $ 1 $ -- $ --
Accrued benefit liability (132) (16) | (110) (22) (236) (240)
Intangible assets -- 3 | -- 3 -- --
Accumulated other comprehensive income (loss) 18 -- | -- -- -- --
-----------------------------------------------------------------------
Net amount recognized, December 31 $(114) $ (11) | $(110) $ (18) $(236) $(240)
=======================================================================
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $911 million, $821 million, and $695 million,
respectively, as of December 31, 2001 ($173 million, $153 million and $117
million, respectively, as of December 31, 2000). The increase in the 2001
amounts was due to the inclusion of the Praxair Retirement Program in 2001. The
projected benefit obligation for U.S. plans was $680 million at December 31,
2001.
The weighted average or range of assumptions for the Company's pension and
OPEB benefit plans were as follows:
[Enlarge/Download Table]
INTERNATIONAL
U.S. PLANS PLANS
------------------- --------------------------
YEAR ENDED DECEMBER 31, 2001 | 2000 2001 | 2000
---------------------------------------------------------------------------------------
Discount rate 7.25% | 7.50% 3.25 - 11% | 3 - 11%
Rate of increase in | |
compensation levels 4.25% | 4.5% 2.25 - 8% | 3 - 8%
Expected long-term rate of | |
return on plan assets 9.25% | 9.50% 5.50 - 12% | 7 - 12%
44
Pension cost for the years shown was calculated using assumptions as of the
prior year measurement date. For measurement purposes, a 12.0% annual rate of
increase in the per capita cost of covered health care benefits was assumed for
2002, gradually reducing to 5.0% in 2008 and thereafter. These health care cost
trend rate assumptions have an impact on the amounts reported; however, cost
caps limit the impact on the net OPEB benefit cost. To illustrate the effect, a
one-percentage point change in assumed health care cost trend rates would have
the following effects:
(MILLIONS OF DOLLARS)
ONE-PERCENTAGE ONE-PERCENTAGE
SENSITIVITY POINT INCREASE POINT DECREASE
--------------------------------------------------------------------
Effect on the total of service
and interest cost components
of net OPEB benefit cost $-- $--
Effect on OPEB benefit obligation $ 4 $(4)
===========================
12 LEASES
For operating leases, primarily involving manufacturing and distribution
equipment and office space, noncancelable commitments extending for more than
one year will require the following future minimum payments at December 31,
2001:
LEASE PAYMENTS* (MILLIONS OF DOLLARS)
----------------------------------------------------
2002 $ 82 2005 $ 45
2003 $ 63 2006 $ 37
2004 $ 52 after 2006 $115
----------------------------------------
* Excludes $14 million related to the 2000 repositioning and special charges
(see Note 2).
Included in these totals are $36 million of lease commitments to Praxair's
former parent company, a subsidiary of Dow Chemical, principally for office
space. Total lease and rental expenses under operating leases were $110 million
in 2001, $95 million in 2000 and $94 million in 1999, excluding $16 million
related to the 2000 repositioning and special charges (see Note 2). The present
value of the future lease payments under operating leases is approximately $303
million at December 31, 2001.
During 1999 and 1998, Praxair sold and leased back certain U.S.
distribution and liquid storage equipment for $80 million and $150 million,
respectively. These operating leases have an initial two-year term with purchase
and lease renewal options at projected future fair market values beginning in
2001 and 2000, respectively. In September 2001, Praxair renewed the $150 million
operating lease for an additional year. In December 2001, Praxair notified the
lessor of its intent to renew the $80 million operating lease commencing March
2002 for an additional year.
13 COMMITMENTS AND CONTINGENCIES
In the normal course of business, Praxair is involved in legal proceedings
and claims with both private and governmental parties. These cover a variety of
items, including product liability and environmental matters. In some of these
cases, the remedies that may be sought or damages claimed are substantial. While
it is impossible at this time to determine with certainty the ultimate outcome
of any of these cases, in the opinion of management, they will not have a
material adverse effect on the consolidated financial position of Praxair or on
the consolidated results of operations or cash flows in a given year. Should any
losses be sustained in connection with any of these cases in excess of
provisions therefore, they will be charged to income in the future.
Praxair has entered into operating leases on distribution and liquid
storage equipment which include residual value guarantees not to exceed $196
million. Management expects any losses under these guarantees to be remote.
At December 31, 2001, the estimated cost of completing authorized
construction projects in the normal course of business is $122 million.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14 QUARTERLY DATA (UNAUDITED)
[Enlarge/Download Table]
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
2001 1Q 2Q 3Q(A) 4Q YEAR
--------------------------------------------------------------------------------------------------------------------------------
Sales $ 1,335 $ 1,314 $ 1,271 $ 1,238 $ 5,158
Cost of sales $ 809 784 752 715 $ 3,060
Depreciation and amortization $ 122 125 127 125 $ 499
Operating profit $ 224 220 148 208 $ 800
---------------------------------------------------------------------------------
Income before cumulative effect of an
accounting change $ 126 $ 126 $ 62 $ 118 $ 432
Cumulative effect of an accounting change(b) (2) -- -- -- (2)
---------------------------------------------------------------------------------
Net income $ 124 $ 126 $ 62 $ 118 $ 430
---------------------------------------------------------------------------------
Basic Per Share Data:
Income before cumulative effect of an
accounting change $ 0.78 $ 0.78 $ 0.38 $ 0.73 $ 2.68
Cumulative effect of an accounting change(b) (0.01) -- -- -- (0.01)
Net income $ 0.77 $ 0.78 $ 0.38 $ 0.73 $ 2.67
Weighted average shares (000's) 160,773 161,543 161,734 161,991 161,510
---------------------------------------------------------------------------------
Diluted Per Share Data:
Income before cumulative effect of an
accounting change $ 0.77 $ 0.77 $ 0.38 $ 0.72 $ 2.64
Cumulative effect of an accounting change(b) (0.01) -- -- -- (0.01)
Net income $ 0.76 $ 0.77 $ 0.38 $ 0.72 $ 2.63
Weighted average shares (000's) 162,661 163,802 163,275 164,137 163,507
=================================================================================
[Enlarge/Download Table]
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
2000 1Q 2Q 3Q 4Q(A) YEAR
--------------------------------------------------------------------------------------------------------------------------------
Sales $ 1,230 $ 1,265 $ 1,275 $ 1,273 $ 5,043
Cost of sales $ 722 761 776 816 $ 3,075
Depreciation and amortization $ 118 118 117 118 $ 471
Operating profit $ 213 219 218 57 $ 707
---------------------------------------------------------------------------------
Net income $ 114 $ 122 $ 122 $ 5 $ 363
---------------------------------------------------------------------------------
Basic Per Share Data:
Net income $ 0.72 $ 0.77 $ 0.77 $ 0.03 $ 2.28
Weighted average shares(000's) 159,433 158,515 158,912 159,633 159,123
---------------------------------------------------------------------------------
Diluted Per Share Data:
Net income $ 0.71 $ 0.76 $ 0.76 $ 0.03 $ 2.25
Weighted average shares (000's) 161,575 160,629 160,854 161,305 161,092
=================================================================================
(a) The third quarter 2001 includes $70 million of pre-tax charges ($57 million
after tax, or $.35 per diluted share) related to restructuring and other
actions. The fourth quarter 2000 includes $159 million of pre-tax charges
($117 million after tax, or $0.73 per diluted share) related to
repositioning and special charges (see Note 2).
(b) Related to the adoption of SFAS 133, Accounting for Derivative Instruments
and Hedging Activities (see Note 1).
46
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL STATEMENTS
Praxair's consolidated financial statements are prepared by management, which is
responsible for their fairness, integrity and objectivity. The accompanying
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America applied on a consistent basis
except for accounting changes as disclosed and include amounts that are
estimates and judgments. All historical financial information in this annual
report is consistent with the accompanying financial statements.
Praxair maintains accounting systems, including internal accounting
controls monitored by a staff of internal auditors, that are designed to provide
reasonable assurance of the reliability of financial records and the protection
of assets. The concept of reasonable assurance is based on recognition that the
cost of a system should not exceed the related benefits. The effectiveness of
those systems depends primarily upon the careful selection of financial and
other managers, clear delegation of authority and assignment of accountability,
inculcation of high business ethics and conflict-of-interest standards, policies
and procedures for coordinating the management of corporate resources and the
leadership and commitment of top management.
Praxair's consolidated financial statements are audited by
PricewaterhouseCoopers LLP, independent accountants, in accordance with auditing
standards generally accepted in the United States of America. These standards
provide for a review of Praxair's internal accounting controls to the extent
they deem appropriate in order to issue their opinion on the financial
statements.
The Audit Committee of the Board of Directors, which consists solely of
non-employee directors, is responsible for overseeing the functioning of the
accounting system and related controls and the preparation of annual financial
statements. The Audit Committee periodically meets with management, internal
auditors and the independent accountants to review and evaluate their
accounting, auditing and financial reporting activities and responsibilities.
The independent accountants and internal auditors have full and free access to
the Audit Committee and meet with the Committee, with and without management
present.
/s/ Dennis H. Reilley
Dennis H. Reilley
Chairman, President and Chief Executive Officer
/s/ James S. Sawyer
James S. Sawyer
Vice President and Chief Financial Officer
/s/ George P. Ristevski
George P. Ristevski
Vice President and Controller
Danbury, Connecticut
February 12, 2002
47
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICEWATERHOUSECOOPERS LOGO]
To the Board of Directors and Shareholders of Praxair, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Praxair, Inc. and
its subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company adopted new accounting standards for
derivative instruments and hedging activities in 2001 and for costs of start-up
activities in 1999.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
February 12, 2002
FIVE-YEAR FINANCIAL SUMMARY (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31, 2001 | 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
FROM THE INCOME STATEMENT |
Sales $ 5,158 | $ 5,043 $ 4,639 $ 4,833 $ 4,735
Cost of sales(a) 3,060 | 3,075 2,732 2,807 2,764
Selling, general and administrative(a) 699 | 683 641 644 662
Depreciation and amortization 499 | 471 445 467 444
Research and development 66 | 65 67 72 79
Other income (expenses) - net(a) (34) | (42) 77 13 52
------------------------------------------------------------------
Operating profit(a) 800 | 707 831 856 838
Interest expense 224 | 224 204 260 216
------------------------------------------------------------------
Income before taxes 576 | 483 627 596 622
Income taxes(a) 135 | 103 152 127 151
------------------------------------------------------------------
Income of consolidated entities 441 | 380 475 469 471
Minority interests (18) | (27) (45) (55) (66)
Income from equity investments(a) 9 | 10 11 11 11
------------------------------------------------------------------
Income before cumulative effect of accounting changes 432 | 363 441 425 416
Cumulative effect of accounting changes(c) (2) | -- (10) -- (11)
------------------------------------------------------------------
Net income $ 430 | $ 363 $ 431 $ 425 $ 405
Adjusted net income(b) $ 522 | $ 509 $ 469 $ 457 $ 456
==================================================================
|
PER SHARE DATA(c) |
Basic earnings per share: |
Income before cumulative effect of accounting changes $ 2.68 | $ 2.28 $ 2.77 $ 2.68 $ 2.63
Net income $ 2.67 | $ 2.28 $ 2.71 $ 2.68 $ 2.56
Diluted earnings per share: |
Income before cumulative effect of accounting changes $ 2.64 | $ 2.25 $ 2.72 $ 2.60 $ 2.53
Net income $ 2.63 | $ 2.25 $ 2.66 $ 2.60 $ 2.46
Adjusted net income(b) $ 3.19 | $ 3.16 $ 2.89 $ 2.80 $ 2.78
Cash dividends per share $ 0.68 | $ 0.62 $ 0.56 $ 0.50 $ 0.44
------------------------------------------------------------------
|
WEIGHTED AVERAGE SHARES OUTSTANDING (000's) |
Basic shares outstanding 161,510 | 159,123 159,280 158,462 158,095
Diluted shares outstanding 163,507 | 161,092 162,222 163,356 164,053
------------------------------------------------------------------
|
CAPITAL |
Total debt $ 2,989 | $ 3,141 $ 2,995 $ 3,274 $ 3,305
Minority interests 141 | 138 359 487 521
Preferred stock 20 | 20 75 75 75
Shareholders' equity 2,477 | 2,357 2,290 2,332 2,122
------------------------------------------------------------------
Total capital $ 5,627 | $ 5,656 $ 5,719 $ 6,168 $ 6,023
------------------------------------------------------------------
|
OTHER INFORMATION AND RATIOS |
Operating profit as a percentage of sales(d) 16.9% | 17.2% 17.9% 18.3% 17.9%
After-tax return on capital(d) 12.0% | 12.0% 11.1% 11.1% 11.1%
Return on equity(d) 20.2% | 20.7% 19.1% 19.1% 20.9%
Capital expenditures $ 595 | $ 704 $ 653 $ 781 $ 902
Cash flow from operations $ 1,020 | $ 899 $ 969 $ 944 $ 769
Cash flow from operations-to-debt ratio 34.1% | 28.6% 32.4% 28.8% 23.3%
Total assets at year end $ 7,715 | $ 7,762 $ 7,722 $ 8,096 $ 7,810
Shares outstanding at year-end (000's) 162,143 | 159,379 159,048 157,571 157,373
Debt-to-capital ratio 53.1% | 55.5% 52.4% 53.1% 54.9%
Number of employees 24,271 | 23,430 24,102 24,834 25,388
------------------------------------------------------------------
(a) In 2001, operating profit includes a $70 million pre-tax charge ($57
million after tax, or $0.35 per diluted share) related to restructuring and
other actions (shown $7 million in cost of sales; $5 million in selling,
general and administrative expenses; and $58 in other income (expense) -
net). In 2000, operating profit includes a $159 million pre-tax charge and
income from equity investments includes a $2 million charge ($117 million
after tax, or $0.73 per diluted share) related to repositioning and special
charges (shown $47 million in cost of sales; $21 million in selling,
general and administrative expenses; and $91 million in other income
(expenses) - net). See Note 2 to the consolidated financial statements for
a description of these charges. In 1998, other income (expenses) - net
includes a $29 million pre-tax charge ($18 million after-tax, or $0.11 per
diluted share) related to its investment in Indonesia ($19 million or $11
million after tax) and an anticipated loss on an air separation plant under
construction for a third party ($10 million or $7 million after tax). Other
income (expenses) - net in 1997 includes a $10 million ($6 million
after-tax or $0.04 per diluted share) special charge related primarily to
profit improvement initiatives in the North American packaged gases
business. 1998 income taxes include $18 million of special tax credits
($0.11 per diluted share). These items are collectively referred to as
special items.
(b) Adjusted net income amounts are before the cumulative effect of accounting
changes, exclude special items in (a) above and exclude goodwill
amortization. The after-tax goodwill amortization was $33 million in 2001,
$29 million in 2000, $28 million in 1999, $32 million in 1998 and $34
million in 1997.
(c) 2001 net income includes the cumulative effect of a change in accounting
for derivatives. 1999 net income includes the cumulative effect of a change
in accounting for previously capitalized start-up costs. 1997 net income
includes the cumulative effect of a change in accounting for previously
capitalized business process reengineering and information technology
transformation costs.
(c) Operating profit as a percentage of sales excludes the impact of the
special items in (a) above. After-tax return on capital is defined as
after-tax operating profit (excluding special items in (a) above) plus
income from equity investments, divided by average capital. Return on
equity is defined as net income (excluding special items in (a) above and
accounting changes) divided by average shareholder's equity.
49
Information for Investors
Elizabeth T. Hirsch, Director, Investor Relations
Praxair, Inc.
39 Old Ridgebury Road
Danbury, Connecticut 06810-5113
e-mail: investor_relations@praxair.com
(203)837-2210
Investor information at www.praxair.com/investors
o Investor package
o Investor updates
o Financial guidance
o Stock information
o Annual reports
o SEC filings
o Financial news
o Presentations
o Quarterly earnings information
o Contact information
o FAQs
Common stock listing (symbol: PX)
New York Stock Exchange
Other stock exchanges trading Praxair stock
Cincinnati
Midwest
Pacific
Frankfurt, Germany
Number of shareholders
There were 20,448 shareholders of record as of December 31, 2001.
Dividend Policy
Dividends on Praxair's common stock are usually declared and paid quarterly.
Praxair's objective is to continue quarterly dividends and consider annual
dividend increases in conjunction with continued growth in earnings per share.
Stock Transfer Agent and Stock Record Keeping
The Bank of New York is Praxair's stock transfer agent and registrar, and
maintains shareholder records. For information about account records, stock
certificates, change of address and dividend payments, contact:
1-800-537-8706 or, from outside the U.S.: (212) 815-5800
e-mail address: Shareowner-svcs@bankofny.com
website address: http://stockbny.com
Address shareholder inquiries to:
Shareholder Relations Department
The Bank of New York
P.O. Box 11258
Church Street Station
New York, New York 10286
Send certificates for transfer and address changes to:
Receive and Deliver Department
The Bank of New York
P.O. Box 11002
Church Street Station
New York, New York 10286
Dividend reinvestment pan
Praxair provides investors a convenient and low-cost program that allows
purchases of Praxair stock without commissions and automatically reinvests
dividends by purchasing additional shares of stock. Contact Shareholder
Relations at The Bank of New York for full details at the address above.
Annual shareholders meeting
The 2002 annual meeting of shareholders of Praxair, Inc. will be held at 9:30
a.m. on Tuesday, April 23, 2002 at the Sheraton Danbury, 18 Old Ridgebury Road,
Danbury, Connecticut.
NYSE quarterly stock price and dividend information
Dividend
High Low per share
________________________________________________________________________
2001
First quarter $49.570 $39.375 $0.17
Second quarter $54.000 $44.100 $0.17
Third quarter $49.640 $36.600 $0.17
Fourth quarter $55.920 $40.700 $0.17
________________________________________________________________________
2000
First quarter $54.938 $31.375 $0.155
Second quarter $48.375 $36.375 $0.155
Third quarter $45.188 $35.000 $0.155
Fourth quarter $45.563 $30.313 $0.155
________________________________________________________________________
1999
First quarter $38.000 $32.000 $0.14
Second quarter $35.000 $48.938 $0.14
Third quarter $51.750 $40.375 $0.14
Fourth quarter $51.750 $42.688 $0.14
________________________________________________________________________
In a change from previous years' annual reports, the table above reflects
trading highs and lows on the New York Stock Exchange. Previous years' reports
listed closing highs and lows.
50
Praxair 2001 annual report - Page 51
Praxair Locations
World Headquarters
------------------
Praxair, Inc.
39 Old Ridgebury Road
Danbury, CT 06810-5113
USA
1-800-PRAXAIR
(716)879-4077 (from outside the U.S.)
Praxair Surface Technologies, Inc.
Indianapolis, IN, USA
(317) 240-2500
(affiliates in Brazil, France, Germany, Italy, Japan, Singapore, Spain,
Switzerland, United Kingdom)
North America
-------------
Praxair, Inc.
Danbury, CT, USA
1-800-PRAXAIR
(716)879-4077
Praxair Mexico S.A. de C.V.
Mexico City, Mexico
52 (555) 354-9500
Praxair Canada Inc.
Mississauga, Ontario
(905)803-1600
South America
-------------
S.A. White Martins
Rio de Janeiro, Brazil
55 (21) 2588-6622
Argentina, Bolivia, Chile, Colombia, Paraguay, Peru, Uruguay, Venezuela
Central America/Caribbean
-------------------------
Praxair Puerto Rico
Gurabo, PR
(787)258-7200
Belize, Costa Rica
Europe
------
Praxair Europe
Madrid, Spain
34 91 453-7200
Austria, Belgium, Bulgaria, Croatia, Czech Republic, France, Germany, Hungary,
Israel, Italy, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia,
Switzerland, Turkey
Asia
----
Praxair Asia, Inc.
Singapore
(65) 6736-3800
India, Japan, Malaysia, People's Republic of China, South Korea, Taiwan,
Thailand
The forward-looking statements contained in this annual report concerning
development and commercial acceptance of new products and services, financial
outlook, earnings growth, and other financial goals, involve risks and
uncertainties, and are subject to change based on various factors. These include
the impact of changes in worldwide and national economies, the cost and
availability of electric power and other energy and the ability to achieve price
increases to offset such cost increases, development of operational
efficiencies, changes in foreign currencies, changes in interest rates, the
continued timely development and acceptance of new products and services, the
impact of competitive products and pricing, and the impact of tax and other
legislation and regulation in the jurisdictions in which the company operates.
Praxair and the Flowing Airstream design, CoJet, Medipure, StarSolver and UCISCO
are trademarks or registered trademarks of Praxair Technology, Inc. in the
United States and/or other countries. Ballard is a trademark of Ballard Power
Systems.
(c) Copyright 2002 Praxair Technology, Inc. All rights reserved.
51
Praxair 2001 annual report - Page 52
Officers, Regional Management and Advisory Council
Office of the Chairman
----------------------
Dennis H. Reilley, Chairman, President & Chief Executive Officer
Stephen F. Angel, Executive Vice President
Paul J. Bilek, Executive Vice President
James S. Sawyer, Vice President & Chief Financial Officer
Thomas W. von Krannichfeldt, Executive Vice President, President, Praxair
Surface Technologies & President, Praxair Semiconductor Materials
Officers
--------
Michael J. Allan, Vice President & Treasurer
Domingos H.G. Bulus, President, Praxair Asia
David H. Chaifetz, Vice President, General Counsel & Secretary
Frank J. Crespo, Vice President, Praxair Semiconductor Materials
Theodore W. Dougher, Vice President, Engineering and Supply Systems
Michael J. Douglas, Vice President, Praxair Metals Technologies
James J. Fuchs, President, North American Industrial Gases & President,
Praxair Canada Inc.
Robert F.X. Fusaro, Vice President, Mergers & Acquisitions
Barbara R. Harris, Vice President, Human Resources
John F. Hill, Chief Information Officer
Randy S. Kramer, Senior Vice President, Sales
Steven L. Lerner, Senior Vice President & Chief Technology Officer
Michael R. Lutz, Vice President, Safety and Production Excellence
Ricardo S. Malfitano, President, Praxair South America & President,
S.A. White Martins
Sunil Mattoo, Vice President, Strategic Planning & Marketing
Peter M. Mayer, Vice President, Procurement & Materials Management
Nigel D. Muir, Vice President, Communications & Public Relations
George P. Ristevski, Vice President & Controller
Sally A. Savoia, Vice President, Healthcare
S. Mark Seymour, Vice President, Tax
Alan J. Westendorf, President, Praxair Europe
Wayne J. Yakich, President, Praxair Distribution, Inc.
Regional Management
-------------------
North America
Howard D. Brodbeck, Vice President, North U.S.
Eduardo F. Menezes, Vice President, West U.S.
Theodore F. Trumpp III, Vice President, East U.S.
Daniel H. Yankowski, Vice President, South U.S.
Murray G. Covello, Managing Director, Praxair Canada
Cesar Guajardo, Managing Director, Praxair Mexico
South America
Jose Carlos Coutinho Robert, Assistant Director, Andean Treaty Countries
Albino Carneiro, Assistant Director, South Cone Countries
Marcelo Pereira Quintaes, Vice President, Industrial Gases, Brazil
Europe
Miguel Martinez Astola, Managing Director, Western Europe, Spain & Portugal
Robert Matthe, General Manager, Poland
Franco Mazzali, Managing Director, Italy and Middle East
Asia
K.H. Lee, President, Praxair Korea
Brent Lok, President, Praxair China
Indrajit Mookerjee, Managing Director, Praxair India
Kitti Prapasuchart, Managing Director, Praxair Thailand
South American Advisory Council
-------------------------------
Dennis H. Reilley, Chairman
Ricardo S. Malfitano, Deputy Chairman
Fernando Aguero, member of the Executive Committee, Sociedad de Fomento
Industrial, Chile
Ricardo Cillioniz, Board member and Chief Executive Officer, Corporation
Aceros Arequipa, Peru
Enzo Debernardi, Consultant, Paraguay
Carlos Langone, Consultant, Brazil
Luiz Pagani, President, Arcor Group, Argentina
Ricardo Paris, Chairman & Chief Executive Officer, Productos de Vidrio,
Venezuela
Jorge Peirano, Chairman, Chamber of Commerce & Services, Uruguay
Benjamin Steinbruch, Chairman, Companhia Siderugica Nacional, Brazil
52
Board of Directors
From left to right, beginning at top left:
Alejandro Achaval
Chairman, Chief Executive Officer and Controlling Partner of IMEXTRADE S.A. and
TRINIDAD S.C.A.
Audit; Finance & Pension Committees
Dale F. Frey
Director of various corporations; former Chairman & President, General Electric
Investment Corporation
Finance & Pension (Chairman); Public Policy & Nominating Committees
Claire W. Gargalli
Director of various corporations; former Vice Chairman, Diversified Search
Companies
Finance & Pension; Compensation & Management Development Committees
Ronald L. Kuehn, Jr.
Director of various corporations; former Chairman, El Paso Corporation
Audit; Compensation & Management Development (Chairman) Committees
Raymond W. LeBoeuf
Chairman & Chief Executive Officer, PPG Industries, Inc.
Finance & Pension; Compensation & Management Development Committees
Benjamin F. Payton
President, Tuskegee University
Audit; Public Policy & Nominating Committees
G. Jackson Ratcliffe, Jr.
Chairman, Hubbell Incorporated
Compensation & Management Development; Public Policy & Nominating (Chairman)
Dennis H. Reilley
Chairman, President & Chief Executive Officer, Praxair, Inc.
Finance & Pension; Public Policy & Nominating Committees
Wayne T. Smith
Chairman, President & Chief Executive Officer, Community Health Systems, Inc.
Audit Committee
H. Mitchell Watson, Jr.
President, Sigma Group of America
Audit (chairman); Compensation & Management Development Committees
William A. Wise
Chairman, President and Chief Executive Officer, El Paso Corporation
Compensation & Management Development Committee
Dates Referenced Herein and Documents Incorporated by Reference
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